Link courtesy 'The darkside'
African Bank: How I LOVE me a bailout.Why This Is Great News For ShareholdersThe artist formerly known as African Bank will now be three entities:
A Good Bank (with the good performing loans)
A Bad Bank (with the bad loans)
An Old Bank (with whatever is left of African Bank, including the interest in Ellerines) – at least, so I gather.
Extract, but read all..
As I read it, here are all the ways that the new shareholders will benefit:
They can take up the rights offer in the Good Bank, which is ring-fenced from the bad loans (now in the Bad Bank) and Ellerines (in the Old Bank). So their money will be pretty safe. And they’ll get the upside when the Good Bank eventually re-lists.
That upside could be significant – because all the stuff that was concerning about the Old Bank (Ellerines, the business model, the non-performing loans) will now be a problem of the past. The Good Bank is going to be all about performing loans and so forth.
As for the bad loans – there’s a guaranteed R7 billion for anyone that takes up shares in the Good Bank (I think that’s where the R7 billion will go). And if there is better collection (including interest rates), then that will be passed along. So there’s upside there.
The bondholders are taking some of the hit (specifically, 10% of their face value) – so there’s a win.
And once the Old Bank is wound up, there will possibly be some residual payout. After all, Ellerines needs to be sold off. And the New Bank will buy the insurance units. But who knows – perhaps there really won’t be anything left.
In summary, if you managed to buy shares on Thursday and Friday, then you’re probably in for a little windfall. If you take up the rights offer, then you’ll have:
Shares in a good bank, with none of the really bad risks (and your share purchase was really just paying for the right to participate in the rights offer).
Possibly a bonus payout from the bad bank.
And even if you don’t do the rights offer, hopefully a little payout from the old bank.It’s good news. Especially if you’re a new shareholder.