* 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
By David Dolan and Tiisetso Motsoeneng
JOHANNESBURG, Aug 6 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
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)