Absa cool on Blue crisis

Johannesburg - Despite holding a 21% share in Blue Financial Services and having recently provided a R120m loan facility to the troubled micro-lender, JSE-listed banking group Absa shows little appetite for supporting its investment.

In response to Fin24.com's enquiries on Monday afternoon, Absa spokesperson Patrick Wadula released a press statement saying: "We [Absa] will consider all proposals received from management on the business merits. As we have no board seat we would not like to speculate on the boards preferred way forward."

On Monday the Alt-X listed micro-lender shocked the market with a reported loss of R162m for the six-month period to end-August. The company also informed the market that its local subsidiary Blue Financial Services South Africa (Pty) Ltd was technically insolvent.

Blue also said it had breached a number of loan covenants which it was attempting to reconcile.

After acquiring an initial 16% stake in Blue Financial Services in 2008 after a collapse in some sizeable Single Stock Futures (SSF) positions, Absa wrote down to zero the carrying value of this investment on their books.

However, in June the bank elected to up its stake in Blue. It also extended a R120m loan facility to help the micro-lender grow its loan book at a time when affordable funding was hard to come by.

While Absa may argue that they do not enjoy board representation, three days after increasing their stake and extending the loan facility to Blue, a former Absa big gun was appointed to the board.

Shaun Strydom, who was appointed financial director, was head of corporate development and group tax at Absa prior to his Blue appointment.

Investors punished Blue on Monday selling the stock down 9.1% (7c) to 70c per share, with 566 000 shares trading hands.

- Fin24.com