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African Bank downgrade doesn't mean a redemption for bondholders, says CFO

Jaco Visser

African Bank says holders of its debt cannot ask for an early repayment of its bonds, despite being downgraded to "junk" status last week.

Moody's Investor Service, which downgraded African Bank's foreign rating to Ba1. (AFP)

African Bank Investments, the South African unsecured lender which was downgraded to junk last week, said there are no foreign or local holders of its debt that could ask for early repayment of its bonds.

“That is because there are no covenants dealing with a downgrade and therefore there is no default,” chief financial officer Nithia Nalliah said in an emailed statement on Tuesday. “Debt funders are therefore only able to redeem on the specified bond maturation date.”

Foreign investors hold 27% of the lender’s liabilities, he said. Moody’s Investors Service on May 29 downgraded the bank’s foreign rating to Ba1, one level below investment grade, citing the deterioration of the company’s loan book. The local rating of African Bank, as the lender is known, was cut one level to A3, which is still investment grade. It has R7.1-billion ($660-million) in bonds up for repayment through the end of next year.

African Bank lost 32% of its market value this year as bad loans more than doubled to R2.5-billion in the fiscal first-half to March, prompting it to cancel its dividend. The lender sold shares to investors in December to bolster its capital as South African unemployment of 25% and a shrinking economy left consumers struggling to pay debt.

Yields on dollar-denominated African Bank bonds due in February 2017 climbed 159 basis points, or 1.59 percentage point, since the downgrade on May 29 to 7.70% on Tuesday. – Bloomberg

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