UPDATE 4-S.Africa's Abil to seek $800 million cash call as CEO quits

Wed Aug 6, 2014 11:46am EDT

* Warns of $600 mln full-year loss, CEO quits

* Needs to tap shareholders for at least 8.5 bln rand

* Looking to ringfence "good" loan book

* Shares down 58 percent (Adds CEO comments from conference call, comment from central bank)

By David Dolan and Tiisetso Motsoeneng

JOHANNESBURG, Aug 6 (Reuters) - African Bank Investments warned on Wednesday it needs to raise nearly $800 million after it flagged an annual loss and its chief executive quit, prompting a shareholder to liken the South African mass-market lender to a "bottomless pit".

The news wiped out 60 percent of the bank's value, with its shares hitting their lowest level since 1997 on widening concerns about its ability to ride out the downturn.

Abil, as the bank is widely known, has been hammered by spiralling bad debts as its core market of low-income borrowers come under strain from rising unemployment, food and fuel costs.

It said it would cleave off its "bad" loans in an attempt to create a ring-fenced "good bank" - a move some analysts said could precede intervention by South Africa's banking regulator.

"We have really been spending a lot of money on this company, it's almost like a bottomless pit now and we need to find a way of closing it," said Dan Matjila, the chief investment officer of the Public Investment Corporation (PIC).

"That can only happen if we have a leadership that has a clear plan to get the company out of this," he told Reuters.

The PIC is the second-largest shareholder in Abil, with a 15 percent stake. The bank said it would need to tap shareholders for at least 8.5 billion rand ($788 million), its second big capital call in around a year.

The amount could be higher if the bank needs more capital for its restructuring, acting Chief Executive Nithia Nalliah said on a conference call.

Abil said it would meet with "key funders" and shareholders to make sure it could avoid a liquidity crunch. It also said it had appointed an independent advisor to review its underwriting, collections and provisioning methods.

Moody's in May cut Abil's international debt rating to "junk", a blow to a lender that has traditionally funded itself in the debt markets, not by deposits.

'GOOD BANK, BAD BANK'

The bank said it was exploring options to isolate itself from its "bad" loans, which comprise nearly a third of its 60.1 billion rand book.

"The Board is satisfied that there is a core 'good' advances book and a sustainable demand for unsecured credit at the appropriate level," it said.

However, some analysts saw the possibility of the central bank forcing one of South Africa's big commercial banks to buy Abil's "good bank". The South African Reserve Bank said it would meet with Abil's board and senior management to discuss "viable, long-term solutions" for the lender.

"There is real moral hazard if African Bank goes to the wall," said Jean Pierre Verster, an analyst at 36ONE Asset Management, which has a longstanding short position - a bet the stock will decline - on the bank.

"You can't have people hearing that they now don't need to repay loans that they previously took out with African Bank. The regulators will avoid that at any cost."

Abil said it had appointed PricewaterhouseCoopers to assist in its restructuring, adding it would make an announcement by the end of this month about its plans to overhaul its business.

Nalliah said the bank had "no intention" to restructure its debt, meaning its bondholders may be available to avoid a write-down on the value of the securities. Abil had nearly 47 billion rand worth of bonds and long-term debt on its balance sheet as of the end of March.

Yields on its Swiss franc-denominated bonds maturing in 2016 soared to more than 18.9 percent on Wednesday. In June the debt traded at a yield as low as 4.2 percent, according to Thomson Reuters data.

Leon Kirkinis, a 23-year veteran and one of the founders of the bank, stepped down as chief executive with immediate effect. Chief Financial Officer Nalliah was appointed acting CEO.

Kirkinis built Abil into a business once worth more than $2 billion by targeting low-income customers with unsecured loans - high-interest credit that is not backed by collateral.

"In the CEO we saw someone who was not in touch with reality, who was overly optimistic, who thought there were solutions when we saw continuing problems," said 36ONE's Verster.

The bank said it expected a headline loss of at least 6.4 billion rand ($594 million) for the year to the end of September versus a profit of 365 million rand the previous year.

Its shares closed down 60 percent at 2.70 rand, having earlier fallen to 2.39 rand, their lowest since 1997.

Headline earnings, the main measure of profit in South Africa, excludes certain one-time items.

($1 = 10.7888 South African Rand)