Abil tumbles after Moody’s cuts to “Junk” status

JOHANNESBURG (Reuters) – Shares of struggling South African lender African Bank Investments tumbled nearly 5 percent on Friday after Moody's cut its international debt rating to "junk" status on concerns about its spiralling bad loans.

Abil, as the bank is known, has been hammered as its target market of low-income borrowers have been squeezed by stubborn inflation, high levels of indebtedness and labour strife in the platinum mines, forcing many to default on payments.

Abil this month reported a first-half loss of 3.1 billion rand ($298 million) and said it would not pay a dividend as non-performing loans totalled 600 million rand more than expected.

The bank, which makes most of its money from unsecured loans – lucrative, higher risk loans that are not backed by collateral – last year raised 5.5 billion rand through a rights offer and investors are worried it may need to raise more capital.

Abil has traditionally funded itself through the debt markets, meaning a credit downgrade would likely drive up the cost of its international borrowing.

Moody's cut Abil's global senior debt and deposit ratings by one notch to "Ba1/Not Prime," which is considered below investment grade.

It also cut its national ratings by one notch to "A3.za/P-2/za," which is still investment grade.

"This rating action reflects Moody's assessment of the deterioration in African Bank's asset quality," the bank said in a statement, citing the Moody's report.

Moody's has also placed the bank's long-term ratings on review, and is likely to conclude that review following the release of a nine-month trading update later this year.

Abil had total debt of around 46 billion rand as of September last year, according to Reuters data.

Shares of Abil, which have lost 70 percent of their value over the last two years, were down 4.6 percent at 8.60 rand at 0828 GMT.

($1 = 10.4145 South African Rand)