Capitec execs probed by JSE
SECOND TIME: HEDGING STRATEGY MAKES THE NEWS
Entity controlled by Michiel le Roux completed transaction of his shares at a deemed value of R1.1 billion.
The JSE is examining trading in Capitec shares by two directors just days before the company issued a profit warning, “to determine whether there are any issues of regulatory concern”.
But, JSE director of market regulation Shaun Davies said the transactions may not have impacted trading on the bourse as they were off-market transactions.
Davies’ response prompted Shane Watkins, chief investment officer of All Weather Capital, to suggest the JSE is opening up a “pandora’s box” of opportunity. “Are they suggesting you can use insider information as long as you’re not trading on the stock exchange?” he asked.
Watkins said that as a listed company it doesn’t matter whether the trading was on or off the market.
According to a Sens announcement issued by Capitec on Monday, an entity controlled by Michiel le Roux completed a hedging transaction on 28 May involving 1.25 million of Le Roux’ Capitec shares at a deemed value of R1.1 billion.
Hours earlier it had issued a Sens announcement relating to a similar type of hedging transaction undertaken by a company linked to Chris Otto and involving 200 000 Capitec shares.
Otto, who like Le Roux is a long-serving member of the Capitec board, completed his transaction on 27 May.
On 29 May, hours before its annual general meeting, the board warned shareholders: “There is a reasonable degree of certainty that Capitec’s headline earnings per share and earnings per share will decline by more than 20%, or more than 509c and 510c, respectively.”
On Tuesday, Capitec’s chief financial officer Andre du Plessis said Le Roux had obtained clearance for the transaction on 4 May.
Capitec released its annual results for the year ended February on 14 April and informed the market of what it knew about the expected impact of the pandemic at that stage, said Du Plessis.
The board was given no further information between then and 4 May when Le Roux obtained clearance. It was well after 4 May that management became reasonably certain that a trading update was required, said Du Plessis.
“The forecast that led to the trading update was shared with the board on 22 May .”
Du Plessis explained that Le Roux had signed the agreement on 4 May and the counterparty began to trade in small volumes.
“They concluded the trades on 28 May upon which Michiel [Le Roux] was in a position to publish the required information relating to the transaction on Sens.”
Du Plessis said circumstances around Otto’s trading were similar.
Watkins was not persuaded by Du Plessis’ explanation, saying: “The authority given to an insider to trade doesn’t hold in perpetuity, otherwise directors could merely get a blanket approval at the beginning of the year.
“Even if Capitec can demonstrate what it did was legal, it reflects poorly on the company,” said Watkins.
This is the second time within three months that Le Roux’ hedging strategy has made the headlines. In March Capitec issued a statement, without mentioning Le Roux, explaining why R49 billion had been wiped off the bank’s market value in a matter of hours.