ON THE SPOT
‘Bad bank’ feels recession bite
But Residual Debt Services says debtors are better off
Residual Debt Services (RDS), the "bad bank" of failed lender African Bank, has warned that its collections could come in below its targets, due in part to SA’s slide into recession.
Curator Tom Winterboer is also cautious about what effect possible debt relief for local consumers might have on its collections in the future.
But releasing results for the six months to March on Thursday, Winterboer said that those who were left with debt in the failed lender "are in a much better position than they initially thought they might be".
"The estimates we gave them [at the time of concluding the African Bank restructuring in April 2016] were much lower than where we are now, so we are doing much better than we anticipated," said Winterboer.
RDS’s net advances have dropped to R1.77bn as it runs down the loans book.
The entity is still racking up hefty interest costs on its bond instruments of about half a billion rand every six months, which contributed to RDS’s R450m loss on operations for the six-month period, against a profit of R42m for the period from April 4 2016 to the end of September.
RDS is essentially winding down the loan book that was not transferred into the "good bank" that is African Bank, with gross loan advances now at R5bn from R7bn over the September period. RDS repaid its R3.3bn loan from the Reserve Bank, which was ranked senior to the rest of its debt, on September 1.
It now has liabilities due to trade creditors of R201m, followed by more than R9bn represented by its senior unsecured debt and subordinated "stub instruments". Last in the pecking order are Abil — now African Phoenix — shareholders.
According to Winterboer, "at one stage these [debt] instruments were trading at around 25c on the rand, and now they’re at about 70c".
But he said investors in African Phoenix — which holds Stangen, as well as RDS and Ellerines, the furniture asset in business rescue — were "very unlikely" to get anything out of RDS down the line.
The entity’s R3bn indemnity fund, which was established in case of any claims against the bad bank, is on track to be fully funded by the end of December.
No claims have been lodged, but the cash buffer will be wound up only by 2024, as agreed with Abil’s stakeholders.
The indemnity fund may also end up paying out to senior stub holders in the event that RDS’s collections remain on track, through interest earned on the R3bn that will be held on deposit across SA’s lenders.