By Ashleigh Brown, journalist, Justmoney
After African Bank Investment Limited’s (Abil) shares went into a freefall last week they were suspended on the Johannesburg Stock Exchange (JSE ). But the question is – who loses out when shares collapse?
It’s not the company itself who loses money, but rather every cent lost is a loss in the hands of the shareholders.
“If trade in the shares is never unsuspended by the JSE the shareholders would lose all the money they had invested unless some type of compensation is given to these shareholders as negotiated and structured by SARB [South African Reserve Bank]. Due to the split of the bank into two separate companies it looks highly unlikely that anyone will get any money out of the shares they currently hold,” said Annabel Dallamore, founder of Stock Shop Portal.
Paul Theron, the CEO of Vestact tweeted on Friday 8 August that people should avoid buying Abil shares entirely. Theron is adamant that the shares are not worth buying, even though the price is very enticing. When asked why, Theron said: “It’s not clear that equity holders won't be wiped out in a potential restructuring.”
Money loss
Tom Winterboer Price Waterhouse and Coopers’s financial services industry leader for Africa told Business Day Live that “the good bank with a sustainable operating model will be listed on the JSE and recapitalised with a R10bn capital raising in which existing shareholders will be allowed to participate. However, he also added that to get to a listing the bank will probably need about six months.”
As trade is still suspended on Abil shares, people cannot sell the shares they already have. “If you still hold Abil shares you will have to continue to hold them as you will not be able to trade suspended shares,” said Dallmore.
Adding to this the SARB released a statement last week saying that: “Ordinary and preference shareholders (including BEE shareholders) will receive little recourse.”
If Abil’s good bank does not pick up when listed on the JSE, then there might not be any market to sell the shares to. Dallmore said that it does not look good for anyone currently holding Abil shares.
“Anyone holding ABIL shares after the suspension would have lost out, or for that matter anyone who bought Abil shares around 31 cents or above and didn’t sell would have lost out. The biggest losers will be large pension funds, other banks, or wholesale investors who had exposure to Abil, for example the PIC [Public Investment Corporation] and Coronation,” said Dallamore.
The freefall
On Thursday 7 August, Abil shares plummeted by 80%. This was after the bank’s quarterly update was released on Wednesday 6 August and its CEO, Leon Kirkinis, resigned.
Trade in Abil shares was then suspended on 11 August by the JSE after the announcement by SARB on 10 August that Abil would be placed under curatorship after the bank’s share price went into freefall, leaving the value of the company at $53 million (R559 million) which equates to a 97% drop for the year.
“In an announcement African Bank said it is “applying to have trade of its securities suspended on exchanges outside of South Africa, such as in the US and Germany, and its debt denominated in US dollars and Swiss francs,” said Dallamore.
The fall of Abil shares had an effect on not only the major shareholders, but also on other banks stocks.
“The plummet has affected the share price of their major shareholders such as Coronation as well as banks such as Capitec which saw a drop in its share price of more than 5% on Friday, 8 August, due to contagion concerns in the sector.
“However, banks overall reacted well to the news that ABIL would be placed under curatorship on Monday. Even though banking stocks reacted well there is still a lot of uncertainty in this space so I personally would tread carefully,” said Dallamore.
For more on African Bank, visit Justmoney: NCR in hot water over Abil