An African Bank branch. Picture: FREDDY MAVUNDA
An African Bank branch. Picture: FREDDY MAVUNDA

Four years after the collapse of African Bank Limited (Abil), only R1.15bn out of a total R9.6bn has been paid to creditors.

According to the latest financial statements for Residual Debt Services (RDS), the so-called “bad bank” that emerged from the split of Abil, R7.8bn will still be outstanding by January 2019 with a chance that some creditors may never be paid. 

“I would caution against using past payments as an expectation. There is a likelihood of a payment or payments being made but I will not classify it as material distribution, said Craig du Plessis, curator of RDS. 

The old African Bank collapsed and was placed under curatorship in 2014 and was renamed Residual Debt Services when it was placed under curatorship.

Du Plessis said RDS will pay R650m more to its senior debt holders by the end of January 2019. This will increase the amount paid to creditors since curatorship began to R1.8bn. However, only senior stub holders have been paid to date. These are creditors, usually banks and bondholders, who are first in line to be paid when a company is declared bankrupt or goes out of business for any other reason.

RDS’s subordinate funders, the second in line to get paid after the senior funders, have not received a cent to date. They will have to keep their fingers crossed and hope that the new African Bank makes no claim against RDS’s indemnity reserve. The indemnity reserve was put in place when RDS sold its “good book” to the new African Bank.

The indemnity was initially funded by theReserve Bank but RDS has generated enough cash from collections in the past two years to repay the R3.3bn loan to the   Bank and has built its own R3bn indemnity reserve plus R500m operating cash float.

The R3bn reserve cannot be distributed to creditors yet and calculations presented by RDS at its annual results presentation on Monday showed that subordinate funders may get nothing if new claims arise and wipe out the entire R3bn.

“Even though there have been no claims against the reserve to date, as long as the indemnity is there, there is a risk,” said Du Plessis.

The indemnity agreement provided for the new African Bank to claim for a “broad range of causes and actions” if itsuffers a loss due to the loan book that RDS sold to it in 2016, he said.

If the entire indemnity is claimed between now and April 2024, no payment would be made to subordinate funders. There would also be no distribution to the shareholders under this scenario. But if no claim is made against the R3bn indemnity reserve, there would be a R98m fair value for subordinate creditors which means there might be some recoveries for them too. The fair valuerepresents just 2.7% of their original principal value which stood at R3.62bn in April 2016.

The amount paid to senior funders so far represents 29% of the original value of their money that stood at R3.97bn in August 2014.

The is no value for shareholders. Although in its financial report RDS said it “may at its absolute discretion” pay over any collections when available to shareholders, the company said its current financial situation shows that there will be no residual cash to distribute to shareholders. As for subordinate funders, RDS said available cash will be applied first to the payment of interest and then to the principal amounts.

RDS will never become an operating entity again. It is not granting any loans and is working at winding up its advances book.

However, Du Plessis said he is “optimistically cautious” about future collections given the deteriorating economic conditions in SA.

Correction: December 14 2018

The article initially stated that Abil still owes R8.45bn to creditors. This is only owed by RDS, one of three components that the Abil group was split into after its collapse, and not the other two components which are now called African Phoenix and African Bank.

buthelezil@businesslive.co.za