Tuesday, 19 August 2014 - 20:00
Charts
Seed Weekly - The African Bank Debacle
African Bank Investment Limited (Abil) has had immense media coverage as the bank went into decline to the point where the Reserve Bank authorised a bailout and placed the bank under curatorship.
African Bank is not a bank in the traditional sense, which is largely funded by a retail deposit base. Rather this bank had very little by way of retail deposits and was mostly funded by institutional bondholders.
Banks are typically risky businesses given the way that they have their balance sheet structured between equity and debt. While each business will vary in the amount of debt that it can take on, a typical (non bank) business may have a debt to equity ratio of around 0.5, i.e. for every rand of equity the business has, it will have half the amount of interest bearing debt. SABMiller, for instance, has a debt to equity ratio of 0.6.
Banks, almost by definition of the nature of the business, operate at far higher levels of debt to equity. In the last set of account, African Bank recorded that it had equity of R 10.3bn, preference share capital of R 1.1bn and total liabilities of R 55bn.
Essentially African Bank borrowed large tranches of money in the capital markets by issuing various bonds in order to raise capital. As a bank it had very little by way of retail deposits. It then lent this combined capital out into the retail market by way of unsecured shorter duration loans at higher rates of interest.
The business model started to unravel when the bank extended loans that it could not fully recover and when it made multiple loans to the same highly indebted client base. It also became clear that the bank did not adequately provide for non-performing loans. This has the effect of overstating their profitability and the recoverability of their loans.
Despite a recapitalisation exercise earlier in the year, it got to the point where the Reserve Bank had no choice but to place the bank into curatorship. At the same time the Reserve Bank announced a recapitalisation plan of R 10bn sourced from the five major banks plus Capitec and the PIC in capitalising a new “good bank” from a portion of the assets.
The various investors into African Bank will be treated as follows
• The price of the equity in African Bank fell from around R10 per share at the beginning of the year to 31 cents before the share was suspended. Existing shareholders will be able to participate in the recapitalisation of the new “good bank” when it relists, but it is now highly unlikely that equity investors will recover their almost 100% losses.
• Senior debt holders will have their debt transferred to the new bank at 90%. I.e. investors in these debt instruments will take a 10% “haircut” of their capital. There is a degree of uncertainty at this stage as to the recoverability of the balance of the outstanding bonds and accrued interest.
• Subordinated debt holders will remain invested in the “old” bank. It is not clear at this stage what their write down will be, but it is likely to be substantial.
Seed Investments exposure
Given the size of African Bank, especially in the bond market, there were many equity, money market and multi asset unit trust funds that had exposure to the equity and debt of African Bank.
While it was widely reported that Coronation had the largest exposure to African Bank equity, the size of this equity exposure in its various portfolios was relatively small compared to two other equity funds, namely the Momentum Value fund which suffered a 10% write down and the Stanlib Value fund with a 6.1% exposure to African Bank’s equity.
• The Seed Equity Fund had no exposure to African Bank Investments equity.
• The Seed Absolute Return Fund had one direct senior debt instrument, which has subsequently been sold. It also had a very small exposure to the Atlantic Stable Income Fund. The estimated total impact on the Fund to investors was -0.06%.
• The Seed Flexible Fund had a two mandates with asset manager Atlantic – a bond mandate and a cash mandate. The estimated total impact on the fund to investors was -0.09%.
• The Prescient Wealth Multi Strategy FoHF had 15% allocated to 36One. This manager has publicly announced that they were short African Bank shares, which generated a net return of approximately 1.6% for the fund itself and hence an approximate 0.24% gain for investors in the Fund of Hedge Funds.
The African Bank failure is a clear indication that all investments carry risk. In this case even many money market funds, which many investors perceived to carry no risk at all, were impacted. Quite obviously while some managers avoided the risk by not investing, or on a more select basis even shorting the shares, most fixed income managers had a small allocation to African Bank debt.
We continue to assess each investment that we include into the portfolios not only on the basis of the expected return, but more importantly on the basis of the various risks that they carry. Sizing the investment position for both risk and return is a crucial element in risk management and hence portfolio management. While we would always like to avoid all losses of a permanent nature for our clients, we do believe that in this particular circumstance where billions have been written down, losses for our clients are relatively small and commensurate with the additional risk.
If you have any questions at any time on this or any other issue, please do not hesitate to contact us.
Kind regards,
Ian de Lange
www.seedinvestments.co.za
info@seedinvestments.co.za
021 914 4966
Tue, 19 Aug 2014
Top News
South African stocks were down on Tuesday with mining companies taking the most points off the index after heavy weight BHP Billiton announced plans to spin off businesses worth an estimated $16 billion but baulked at a share buyback. Full story
The rand gleaned support from expectations that interest rates in South Africa are going to continue higher, keeping the local currency holding steady against a stronger dollar. Full story |
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Israel said Palestinian militants fired rockets from Gaza on Tuesday in violation of a truce, attacks that swiftly drew air strikes and the recall of Israeli negotiators from talks in Cairo on a long-term ceasefire. Full storyU.S. police said early on Tuesday they came under heavy gunfire and arrested 31 people during another night of racially charged protests in Ferguson, Missouri, sparked by the fatal shooting of an unarmed black teenager by a white policeman 10 days ago. Full storyTens of thousands of protesters used a crane and bolt cutters to force their way past a barricade of shipping containers in the Pakistani capital Tuesday as they marched on parliament to try press the prime minister to resign. Full story |
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Markets | Wall Street got a lift from the
U.S. housing sector and extended a global stock markets rally on
Tuesday as investors shifted focus. . . Full story | | U.S. stocks advanced on Tuesday
after solid earnings from Home Depot helped lift retailers'
shares and Apple touched $100 for the first time. . . Full story | | European shares extended the
previous session's rally on Tuesday, with Germany's DAX
index outperforming, driven by what traders saw as an easing. . . Full story | | Britain's top share index climbed
to its highest closing level in three weeks on Tuesday,
bolstered by housebuilding stocks after robust results from
Persimmon.. . . Full story |
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| Gold moved lower on Tuesday on
buoyant global equities and as the dollar strengthened after
upbeat U.S. data, while the market continued to. . . Full story | | U.S. stocks opened higher on
Tuesday, putting the S&P 500 on track for a second straight day
of gains, following solid earnings from. . . Full story | | U.S. stock index futures
advanced modestly on Tuesday, putting the S&P 500 on track for a
second straight day of gains, after solid. . . Full story | | Global stocks rose and
money-market rates fell to new lows on renewed investor appetite
for risk on Tuesday, as investors breathed easier over. . . Full story |
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SA Business | South Africa's Shoprite warned of a continuing squeeze on the country's consumers after posting its slowest profit growth in 15 years, sending its shares to a five-month low.. . . Full story | | South African bullion producer Harmony Gold said on Tuesday it will temporarily close its Target 3 shaft because it is bleeding money, a move that could affect up to 1,500 jobs.. . . Full story |
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| The world's biggest
mining company, BHP Billiton , announced plans to
spin off businesses worth an estimated $16 billion, most of them
acquired in. . . Full story | | South Africa's financial regulator said on Tuesday it had given some investment funds the go-ahead to divide up assets they hold. . . Full story | | South Africa sold 2.35 billion rand (221 million US dollars) of its 2032, 2037 and 2044 bonds on Tuesday. Yields. . . Full story | | When a scorching drought struck
eastern Australia in 2006, cattle farmers Robyn and Paul Kendal
had to slaughter nearly all their livestock and. . . Full story |
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| The following bids, mergers, acquisitions
and disposals were reported by 2000 GMT on Monday:. . . Full story |
World Markets (Spot Prices)
Name | Time | RP | Move | % Move | JSE Overall | 17:00 | 51363.37 | -208.82 | -0.40% | JSE Top 40 | 17:00 | 46195.61 | -229.16 | -0.49% | JSE Gold | 17:00 | 1493.62 | 2.78 | 0.19% | JSE Financial | 17:00 | 37953.43 | 90.00 | 0.24% | JSE Industrial | 17:00 | 67379.83 | 258.46 | 0.39% | JSE Indust 25 | 17:00 | 59585.32 | 249.17 | 0.42% | JSE Resource | 17:00 | 58170.95 | -1566.44 | -2.62% | DJ Futures | 18:52 | 16885.00 | 92.00 | 0.55% | DJ Ind | 19:58 | 16912.79 | 74.05 | 0.44% | SP 500 | 19:58 | 1980.20 | 8.46 | 0.43% | Nasdaq | 19:58 | 4522.97 | 14.66 | 0.33% | FTSE 100 | 17:35 | 6779.31 | 38.06 | 0.56% | DAX | 18:08 | 9334.28 | 88.95 | 0.96% | CAC40 | 18:08 | 4254.45 | 23.80 | 0.56% | Nikkei | 08:28 | 15449.79 | 127.19 | 0.83% | Shanghai | 09:28 | 2245.33 | 5.86 | 0.26% | Hang-Seng | 10:48 | 25122.95 | 284.55 | 1.15% | All Ords | 08:37 | 5618.40 | 37.80 | 0.68% | NZSE 50 | 07:48 | 5114.21 | 43.09 | 0.85% |
| | Name | Time | RP | Move | % Move | Gold $ | 19:59 | 1296.11 | -1.94 | -0.15% | Gold R | 19:59 | 13819.95 | 61.54 | 0.45% | Gold R/kg | 19:58 | 444221 | 2285 | 0.52% | Silver $ | 19:59 | 19.4360 | -.1730 | -0.88% | Platinum $ | 19:59 | 1436.30 | -3.20 | -0.22% | Palladium $ | 19:59 | 877.80 | -11.70 | -1.32% | R157 | 16:58 | 6.60 | -.02 | -0.30% | R186 | 16:58 | 8.28 | -.03 | -0.30% | R204 | 16:58 | 7.38 | -.02 | -0.27% | R207 | 16:58 | 7.64 | -.03 | -0.39% | Brent Crude | 19:58 | 101.58 | -.02 | -0.02% | Rand / Dollar | 19:59 | 10.6619 | 0.0613 | 0.58% | Rand / Pound | 19:55 | 17.6708 | -0.0288 | -0.16% | Rand / Euro | 19:55 | 14.1880 | 0.0239 | 0.17% | Rand / NZD | 19:59 | 8.9906 | 0.0002 | 0.00% | Rand / AUD | 19:55 | 9.9183 | 0.0314 | 0.32% | Yen / Dollar | 19:59 | 102.8720 | 0.3140 | 0.31% | Euro / Dollar | 19:59 | 0.7509 | 0.0024 | 0.32% | Dollar / Euro | 19:59 | 1.3317 | -0.0044 | -0.33% | Pound / Dollar | 19:55 | 0.6016 | 0.0040 | 0.67% |
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Click here for the Sharenet Spot Price page
The JSE Today
Trading Statistics
Date | Adv. | Decl. | Unch. | Actives | Volume | Value | Trades | Orders |
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19/08/2014 | 182 | 172 | 56 | 410 | 192,575,711 | R13,601,706,492 | 169919 | 1344492 | 18/08/2014 | 201 | 135 | 67 | 403 | 164,261,891 | R10,412,540,528 | 139563 | 552587 | 15/08/2014 | 170 | 152 | 73 | 395 | 189,576,079 | R11,625,888,165 | 137960 | 1365367 | 14/08/2014 | 163 | 184 | 64 | 411 | 208,704,366 | R14,673,775,832 | 173754 | 1259371 | 13/08/2014 | 150 | 203 | 63 | 416 | 229,858,058 | R16,227,380,790 | 182971 | 309146 |
* Includes all listed instruments on the JSE
Index Summary Index Name | RP | Move | % Move | Top 40 | 46,195.61 | -229.16 | -0.49% | Industrial | 67,379.83 | 258.46 | 0.39% | Mid Cap | 65,571.22 | 19.05 | 0.03% | Small Cap | 55,162.93 | 153.75 | 0.28% | Resource 20 | 58,170.95 | -1566.44 | -2.62% | Industrial 25 | 59,585.32 | 249.17 | 0.42% | Financial 15 | 14,640.45 | 36.32 | 0.25% | Financial & Ind. 30 | 63,446.77 | 282.28 | 0.45% | All Share | 51,363.37 | -208.82 | -0.40% | Oil & Gas | 47,121.03 | 287.56 | 0.61% | Mining | 34,323.18 | -1138.39 | -3.21% | Gold Mining | 1,493.62 | 2.78 | 0.19% | Platinum Mining | 47.32 | .28 | 0.60% | GENERAL MINING | 10,022.36 | -425.78 | -4.08% | Oil & Gas Producers | 25,336.11 | 154.62 | 0.61% | Basic Materials | 30,235.25 | -900.73 | -2.89% | Chemicals | 24,268.92 | -47.16 | -0.19% | Forestry & Paper | 31,201.25 | -57.43 | -0.18% | Industrial Metals | 19,382.69 | 114.66 | 0.60% | Industrials | 47,213.72 | 163.43 | 0.35% | General Industrials | 152.96 | .74 | 0.49% | Consumer Goods | 60,473.18 | 312.50 | 0.52% | Automobiles & Parts | 8,152.05 | -255.88 | -3.04% | Household Goods | 357.28 | 11 | 3.09% | Health Care | 87,903.73 | 376.49 | 0.43% | Beverages | 200.08 | -.10 | -0.05% |
| | Index Name | RP | Move | % Move | Food Producers | 79,399.75 | 209.29 | 0.26% | Personal Goods | 1,029.43 | 7.99 | 0.78% | Consumer Services | 12,602.56 | -45.28 | -0.36% | General Retailers | 64,944.17 | -1040.47 | -1.58% | Travel & Leisure | 5,923.47 | 28.73 | 0.49% | Media | 296.87 | 2.31 | 0.78% | Support Services | 2,760.18 | -18.31 | -0.66% | Telecommunications | 11,614.50 | 165.33 | 1.44% | Financials | 37,953.43 | 90.00 | 0.24% | Banks | 66,240.52 | 334.62 | 0.51% | Non-life Insurance | 55,186.67 | 1421.59 | 2.64% | Life Insurance | 36,067.75 | 100.59 | 0.28% | General Financial | 3,632.83 | 23.60 | 0.65% | Technology | 43,614.87 | 15.05 | 0.03% | SHARIAH TOP40 | 4,350.82 | -63 | -1.43% | FTSE/JSE SHARIAH ALL | 4,484.42 | -52 | -1.15% | COAL MINING | 18,856.45 | 159 | 0.85% | FTSE JSE Fledgling | 6,764.13 | 36 | 0.54% | FTSE/JSE Alt X | 1,300.71 | 23 | 1.81% | SA LISTED PROPERTY | 540.74 | | -0.38% | CAPPED PROPERTY | 471.83 | | -0.46% | RESOURCE | 31,712.49 | -810 | -2.49% | DIVIDEND PLUS | 224.21 | 0 | 0.07% | FTSE/JSE RAFI 40 | 10,123.64 | -46 | -0.45% | Capped Top 40 | 24,496.96 | -81 | -0.33% | Capped All Share | 26,015.30 | -95 | -0.36% | JSE TABACO | 7,969.28 | 8 | 0.10% |
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Click here for the Sharenet Index Summary page
Latest Consensus Changes** Code | Company Name | Status | Updated | GFI | GOLD FIELDS LIMITED | HOLD | 18/08/2014 | BIL | BHP BILLITON PLC | BUY | 18/08/2014 | LEW | LEWIS GROUP LIMITED | HOLD | 18/08/2014 | PPC | PRETORIA PORT CEMNT | BUY | 18/08/2014 | SHF | STEINHOFF INTERNATIONAL H... | BUY | 18/08/2014 |
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Results Expected** Expected | Company Name | Fin. Date | 20/08/2014 | ARB | June 2014 (Final) | 20/08/2014 | BHPBILL | June 2014 (Final) | 20/08/2014 | BHPBILL5 | June 2014 (Final) | 20/08/2014 | BLUETEL | May 2014 (Final) | 20/08/2014 | GLENCORE | June 2014 (Interim) |
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Recent Dividends** Share Name | Dec-Date | LDT | Pay-Date | Amount | CLIENTELE | 18/08/14 | 12/09/14 | 22/09/14 | ZAR 0.7800 | ADAPTIT | 18/08/14 | 05/09/14 | 15/09/14 | ZAR 0.0823 | KAP | 18/08/14 | 26/09/14 | 06/10/14 | ZAR 0.1200 | CITYLDG | 15/08/14 | 05/09/14 | 15/09/14 | ZAR 1.8900 | STANBANK6.5 | 14/08/14 | 29/08/14 | 08/09/14 | ZAR 0.0325 |
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Ex Div** Share Name | Dec-Date | LDT | Pay-Date | Amount | FIRSTRANDB-P | 24/07/14 | 15/08/14 | 25/08/14 | ZAR 3.4111 | SABVEST | 30/07/14 | 15/08/14 | 25/08/14 | ZAR 1.0000 | SABVEST-N | 30/07/14 | 15/08/14 | 25/08/14 | ZAR 1.0000 | SIBANYE | 31/07/14 | 15/08/14 | 25/08/14 | ZAR 0.5000 | BATS | 30/07/14 | 15/08/14 | 30/09/14 | GBP 0.4750 |
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Upcoming AGMs** Code | Company Name | Date | Status | HUG | Huge Group Ltd. | 19/08/2014 | Confirmed | RACP | RECM - Calibre Ltd. | 20/08/2014 | Confirmed | RACC | RECM - Calibre Ltd. | 20/08/2014 | Confirmed | PSV | PSV Holdings Ltd. | 21/08/2014 | Confirmed | CDZ | Cadiz Holdings Ltd. | 21/08/2014 | Confirmed |
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