Investec's money manager and Sanlam have the most at risk in a looming bond default of at least R925-million ($94-million) after the liquidation of First Strut, a South African engineering company.
Investec Asset Management invested R435-million in a First Strut note through a company called Bacarac Trading, according to court documents filed in Pretoria on July 16 by Leslie Matuson and John Louw, who were appointed as business rescue practitioners.
Sanlam Capital Markets purchased R263-million, Fairtree Capital took R131-million of the notes, Prudential Portfolio Managers bought R51-million, Rand Merchant Bank invested R50-million and Stanlib Asset Management acquired R22-million.
First Strut’s liquidation came after the murder of chairperson Jeff Wiggill last month in Soweto, southwest of Johannesburg. Wiggill’s shooting was a contract killing, the Johannesburg-based Star reported last week, citing the bail application of one of the men arrested for his killing.
First Strut, which supplied the transport, mining and power industries, was placed in provisional liquidation on July 16.
Investec Asset Management, which manages R40-billion in corporate debt, said the First Strut bonds were part of a high-yield institutional credit strategy.
“Clients can still expect a positive return for the year ahead,” the Cape Town-based money manager said in an emailed reply to questions on Tuesday.
FirstRand, owner of South Africa’s second-largest banking group which includes Rand Merchant Bank, loaned the engineering company R200-million and invested R50-million in the bond, Sam Moss, investor relations director of Johannesburg- based FirstRand, said in an emailed response to questions on Tuesday.
The money invested by Fairtree Capital “was held in several credit portfolios, has been fully provided for, and within the mandates given by the underlying investors,” Paul Crawford, a portfolio manager at the Cape Town-based company, said by phone. “The portfolios remain ahead of their performance targets.”
First Strut has R925-million of floating-rate notes outstanding, which RMB sold for the company, according to data compiled by Bloomberg.
While Stanlib said it couldn’t respond due to client confidentiality, Sanlam Capital Markets, a unit of South Africa’s second-biggest insurer and Prudential Portfolio Managers didn’t immediately respond to telephone or emailed requests for comments.
Cosira, a major unit of First Strut, applied for business rescue a week before Wiggill, 59, was found dead, according to an affidavit filed by First Strut chief executive officer Andris Bertulis.
Wiggill had bullet wounds to his head and was found next to his black Bentley on June 20, the South African Press Association (SAPA) reported. While his wallet and mobile phone were missing, the motive for the killing was unknown, SAPA said, citing police captain, Augustinah Selepe.
The business rescue process, which tries to protect a company from creditors in the hope it can be salvaged, failed after Louw and Matuson were unable to raise as much as R80-million in July.
Matuson met with creditors from July 11 at the Johannesburg offices of law firm Edward Nathan Sonnenbergs and asked for the money to keep First Strut afloat for one month, according to court documents. “All secured creditors were unanimous that they were not prepared to put any further funds into the group,” according to an affidavit by Matuson, which was filed on July 16. “The financial position of the respondent and other entities is so dire that they could not even make payment of the weekly wages due July 12, given that all bank accounts were frozen.”
Bondholders step in
Bacarac, the special purpose company which acts for bondholders, secured a court order on July 12 to attach all of First Strut’s assets. While there are six named investors in its bond, all of the company’s lenders are not yet known.
Absa Group, controlled by Barclays, loaned First Strut about R30-million, according to its investment banking head, Stephen van Coller. Absa didn’t invest in the high-yield note, he said, adding that any losses will be covered by provisions for bad debts.
Investec said last week its banking unit loaned about R240-million to First Strut. Investec didn’t immediately respond to emailed questions on Tuesday. – Bloomberg