African Bank says senior creditors of Residual Debt Services (RDS) — the old African Bank that was placed under curatorship in 2014 — have received R4.6bn in payments to settle outstanding debt owed to them.
The bank also says a further R2.7bn will be made available to fully repay the senior unsecured debt holders of RDS and make a first part repayment to the subordinated debt holders, according to a statement issued on Tuesday. African Bank CEO Kennedy Bungane said the extraordinary payment meant senior debt holders of RDS would be “made whole”.
As part of the lender’s post-curatorship, the majority of the debt owed by the old entity was transferred to the new African Bank with material liabilities ring fenced in RDS. These so-called “residual stub” debt instruments entitled both senior and subordinate debt holders to payments from RDS over time.
However, before any payments could be made, RDS had to establish an indemnity reserve of R3bn and an operating cash float of R500m in April 2016. Over time these obligations were fulfilled with R4.6bn paid to senior stub-instrument holders in 10 payments.
African Bank says the result of this is that senior unsecured stub instrument holders of RDS have not lost any capital and have received a financial return on the instruments with interest being paid. The two entities have also agreed to reduce the indemnity that was provided by RDS to African Bank from R3bn to R500m.
The curator of RDS has also reduced the operating float from R500m to R300m, which will result in R2.7bn being made available to fully repay the senior unsecured stub-instrument holders of RDS and make a first part repayment to the subordinated stub-instrument holders.
The old African Bank was placed under curatorship in August 2014 and two years later a new entity was created.
“We are delighted that along with the strong collections on behalf of RDS, we were able to reach this decision to bring the payment timetable forward,” said Bungane.
“This joint decision by African Bank and RDS is another significant development for African Bank after its acquisition this year of Grindrod Bank that will accelerate its development in the business banking sphere and Ubank’s assets and liabilities, which adds new mainly remote based customers into the transactional space.”
African Bank announced in May that it was buying 100% of Grindrod Bank in a R1.5bn deal, to accelerate its entry into the business banking market. It then followed that up in August with a separate R80m deal to buy the assets of Ubank, a lender formerly known as Teba Bank that traditionally serves customers in rural areas and mining communities.
“This is a significant milestone and commendable achievement that has resulted from the ongoing collaboration between RDS and African Bank, in managing and collecting the book since the restructuring was concluded in April 2016,” Craig du Plessis, curator of RDS, said.
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