'Complete mess' at African Bank could delay relisting

28 December 2014 - 02:00 By Thekiso Anthony Lefifi

African Bank's curators are having a tough time untangling the bank from its crippling furniture business, Ellerines, with the result that relisting the business on the JSE could take far longer than initially planned.

The release of the group's annual results ending in September has been delayed until the first quarter of next year to allow curators time to separate the financials of the two businesses from the date "at which control was lost".

African Bank's board said in a statement on Sens that Tom Winterboer, the curator, and his team were considering "significant changes" in accounting policies.

Should the changes be implemented, the curator would also consider whether to make these changes to the bank's financials prior to curatorship to facilitate a more accurate comparison.

In August, African Bank was placed under curatorship and Ellerines went into business rescue.

According to international accounting rules, their financials have to be accounted for separately, at fair value - in other words, the value reflected in the books.

"As Abil [the holding company] and African Bank are not under common control, they do not necessarily need to have the same accounting policies, but each choice (where permitted) needs to be justifiable," African Bank's statement said.

The assets and liabilities to be transferred to the new "good bank" have not yet been fully identified. Consequently, what will be left in African Bank has also not been finalised, according to the curator.

This means that the fair value of the investment in the lender cannot be calculated with "reasonable accuracy" at the moment. The curator is working with Deloitte to determine the fair value.

Wayne McCurrie, head of Momentum Wealth Portfolio Management, said all this meant was that curators and business rescuers did not know what the value of the business was because nothing had been finalised.

"No one cares when they publish the [financial] results because you have lost your money now. Whether they publish it now or in six months' time, you are not going to get anything back," said McCurrie.

He described the situation at African Bank as a "complete mess".

The bank was placed under curatorship by the Reserve Bank in August after the bank warned of massive losses and said it needed about R8.5-billion in new capital.

A consortium involving major banks and the Public Investment Corporation committed to underwrite R10-billion in capital for the new bank.

The Reserve Bank has since initiated an investigation headed by advocate John Myburgh into whether African Bank had been reckless, negligent or fraudulent prior to the collapse.

The business rescue of Ellerines had resulted in a "garage sale" of its furniture brands and stores, McCurrie said.

Because the piecemeal sale is still under way, the value has not been determined yet. "This has complicated the determination of the deconsolidation balance sheet," the group said.

The Competition Tribunal recently approved the offer by Shoprite for up to 217 stores in the failed Ellerines group.

In the past few months, Lewis paid R90-million for 63 stores and the Beares brand, and Coricraft bought Dial-a-Bed for R200-million.

Ellerine Furnishers, the main operating subsidiary, and holding company Ellerine Holdingsunderwent business rescues on different dates - August 7 and August 22 - which has further complicated the disclosure and accounting procedures.