Hard-pressed Bridge opts for business rescue

28 September 2014 - 02:06 By MALCOLM REES
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RESCUE: Emile Aldum says funding has dried up
RESCUE: Emile Aldum says funding has dried up
Image: Picture:TWITTER

IN THE wake of African Bank's dramatic collapse, a second notable unsecured lender has sounded the alarm and looks to be in trouble.

IN THE wake of African Bank's dramatic collapse, a second notable unsecured lender has sounded the alarm and looks to be in trouble.

Bridge Corporate, a major player in the short-term unsecured lending space, has applied for business rescue, stating it is in "financial distress" and "unlikely" to pay its short-term debts.

The distress, according to Bridge CEO Emile Aldum, stems from a sharp turn in investor sentiment after the Reserve Bank placed African Bank under curatorship last month.

Now, two major institutional funding transactions, one with a "very well known" SA asset manager, and the other with a UK- based financier, have fallen through, leaving Bridge R500-million short of the capital it required to fund its R1.2-billion loan book.

"African Bank has had a much bigger impact on the reputation of South Africa in the investment community than people realise," said Aldum.

As Bridge battles to remain afloat, it plans to downsize its lending "machine" from one that had capacity to pump R100-million of credit into the market a month to a "self-funded" business issuing roughly R25-million, a move likely to result in more job losses following the unsecured bust.

It is also clear that its ambitions to list on the JSE are on hold.

Papers issued alongside the lender's business-rescue application also reveal that its creditors will probably suffer as "agreed interest rates payable on the current funding model [will] not be paid or be partly paid". Bridge intends chopping investor's returns from a significant 19% a year to about 6%, said Aldum.

That investors had been offered a 19% return in the first place has raised questions over the sustainability of Bridge's model.

A Business Times investigation has also shone light on the devastating consequences for borrowers of short-term, unsecured credit. Numerous documents reveal how these consumers can be charged exorbitant fees as their debt goes through a legal debt-collections process.

One Bridge customer borrowed less than R5847, repaid R26479 but still owes R10442. With additional charges, the customer would have to repay, in under three years, about R38000, close to an annualised 200% effective cost of credit.

This is not abnormal, according to Kem Westdyk of Summit Garnishee Solutions, which audits garnishee orders. "We have many similar examples," he said .

In addition to the fees and interest charged by Bridge, other costs are added as legal debt firm Flemix and Associates secures an emolument attachment order, commonly referred to as a garnishee order, against the consumer. These cases may then be sold on to the controversial Cambist platform, owned by OneLaw, which promises its investors a return of 19.5% as they are offered the opportunity to buy Bridge's delinquent debt.

"If an investor in the market is able to make that kind of return and then the people who are buying the debt on Cambist again generate a return [it raises the question] of what the original borrower is being charged," said Warren Ingram of Galileo Capital.

"That sort of business case, where people with means are earning that kind of a return off people with no means, that can't sustain itself," he said. "The practice is morally indefensible."

Bridge and OneLaw used to be part of the same company before being unbundled before 2013. OneLaw is run by Emile's father, Corne Aldum. Flemix also shares a close history with Bridge.

In the R5847 debt case, Arnoud van den Bout, product manager at OneLaw, said: "The matter still complied with our rules and filtering engines in terms of compliance. That means the problem with the matter exists in the handover amount that was given to the attorneys."

Flemix, meanwhile, has also washed its hands of any blame. "We act on instructions from our client," said director Alanza Flemix-Jordaan.

Bridge has instituted revised service-level agreements with its debt collectors, which would prevent these exorbitant charges occurring in future, according to Aldum. But those agreements are not retroactive, meaning defaulting borrowers would still be charged at historical rates.

Aldum said he intended to discuss with his board steps to make the amendments to the agreements retroactive for consumers who default on their debt obligations.

See Page 7

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