African Bank Investments Ltd. (ABL) jumped the most in two months after South Africa’s largest provider of unsecured loans said it plans to raise as much as 4 billion rand ($405 million) in a rights issue to bolster its capital.
The stock rebounded from a decline of as much as 13 percent to gain 5.1 percent to 15.13 rand at the close in Johannesburg, the biggest gain since June 4. More than 606 million shares changed hands, over four times the three-month daily average.
African Bank, which gives loans not backed by assets to low-income earners, said it enlisted Goldman Sachs Group Inc. (GS:US) to help sell stock after it was unable to raise funds in international debt markets this year. The bank said it will also speed up the sale of Ellerines, its furniture retail business.
“It will most certainly provide a lot comfort to the funders,” that capital will be increased, Adrian Cloete, an equity analyst at Cadiz Asset Management in Cape Town, said in an e-mailed response to questions today. “Ellerines has been a big drag on the group, so it’s positive that the group has decided to accelerate the disposal.”
African Bank doesn’t take deposits to fund lending. The lender scrapped a plan to sell bonds outside of its local market earlier this year after a regulator said it may fine the bank over lending practises and bad debts rose. The South African economy has slowed while consumer indebtedness has risen, forcing the bank to curb lending and increase provisions.
African Bank bought furniture business Ellerines in 2008 and hasn’t met profit targets for the unit.
Questions on Pricing
“The question is whether they will get a good price for the share sale and the sale of Ellerines,” Henre Herselman, a derivatives trader at Nedbank Private Wealth in Johannesburg, said today by telephone.
African Bank said advances through the fiscal third quarter increased 19 percent to 60.3 billion rand, while the number of loans declined 10 percent year-on-year to 17.7 billion rand. The banking unit’s earnings for the second half of this year are expected to be lower than in the first, the lender said.
African Bank has dropped 53 percent this year, more than any other bank in South Africa. Capitec has gained 0.7 percent and rose 2.3 percent to 184.19 rand in Johannesburg trading.
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