The collapse of African Bank Investments Ltd. is forcing the money manager holding most of the South African government's pension assets to agree to invest 5 billion rand ($440 million) to rescue the lender.
The money manager, Public Investment Corp., runs assets of the Pretoria-based South African Government Employees Pension Fund, which has about 1.5 trillion rand. The manager owned 12% of African Bank when it failed in August. The bank collapsed after it forecast record losses and said it needed at least 8.5 billion rand to survive. The central bank devised a rescue plan that involves buying the bad loans and recapitalizing the “good bank.”
“PIC has committed to provide up to 50% of the total amount required to recapitalize the 'good bank,' which cannot exceed 5 billion rand,” Finance Minister Nhlanhla Nene said in response to questions in Parliament from the opposition Democratic Alliance party.
As part of the South African Reserve Bank's Aug. 10 plan to save the bank, six other banks and the PIC were asked to underwrite 10 billion rand so the lender could hold an initial public offering in Johannesburg early next year.
“The net exposure of the Government Employees Pension Fund to (African Bank Investments) currently stands at just over 4 billion rand,” which is 0.5% of the PIC's investments, Mr. Nene said. “The PIC hopes to recover some of this through its participation in recapitalizing the 'good bank.'”
African Bank Investments — South Africa's largest provider of unsecured credit to low-income earners — had bad loans amounting to about 17 billion rand when it failed, according to the central bank. It bought that book for 7 billion rand. With the PIC having potentially lost 4 billion rand and now investing another 5 billion rand, more than 16 billion rand of government resources are now committed to the failed lender.
It “increasingly looks like an indirect state bailout … which is not necessarily a positive,” Peter Attard Montalto, an economist at Nomura International, said by e-mail Tuesday. “The involvement of PIC can, of course, be justified on the grounds that such a strategic investor would be happy to be involved in such a significant bank.”