Who lent their shares for short selling?

Calls for an investigation into the short selling alleged to be behind the wild gyrations in the price of a number of JSE-listed companies will probably not be acted on.

The calls have focused on revealing the identity of the parties behind the short selling that almost wiped Steinhoff out in December and subsequently caused considerable damage to the Aspen share price as well as to the prices of a number of property companies. While Aspen and the property companies have recovered most of their losses, the same cannot be said for Steinhoff, which four weeks later remains below R10.

This isn’t the first time there have been calls for some control over short selling. In the 1990s, when it first became a significant issue on the JSE, Liberty founder Donald Gordon was a firm opponent and demanded tough action from regulators. His opposition was based on the fact that his share was often attacked by short sellers.

Some regulations were introduced to curb the worst perceived excesses. Decades later, most market participants accept the “price discovery” benefits of short sellers. In an efficient market, they tend to identify weaknesses and knock the share price into line with those weaknesses.

Demands that the identities of the parties behind the controversial research company Viceroy should be revealed are a little puzzling. Unless it’s Christo Wiese or Markus Jooste, what would be the point? Much more interesting would be to know the identity of the shareholders who made the short selling possible by lending the shares.

Lending scrip is a nice little earner for large institutional shareholders and particularly for fund managers operating exchange-traded funds.

Presumably, in the majority of cases it doesn’t do too much damage to the long-term value of the share. But all those managers who lent their Steinhoff shares must be feeling a little sheepish right now. Let’s get their names out there.

Khalid Abdulla, CEO of JSE-listed African Equity Empowerment Investments (AEEI), believes his company’s shares are meaningfully undervalued, which he hopes to change via the separate listing of two group companies.

AEEI controlled, directly and indirectly, “about R4bn to 5bn of cash across the business”, Abdulla said in an interview last week.

With its shares trading at R7.70, its market capitalisation is only about R3.8bn, while AEEI has an enterprise value of R4.3bn. AEEI was responsible for the JSE’s first listing of 2017 – its Premier Fishing and Brands unit – and also the last, when it unbundled Ayo Technology Solutions in December.

Ayo debuted on the JSE with an inferred market capitalisation of R14.7bn.

The initial public offerings helped the companies raise cash for acquisitive growth and also allowed investors to understand the group better and recognise its value, he said.

The separate listing strategy is bearing fruit, according to Abdulla, who said AEEI was receiving plenty of calls from institutions “who are starting to show an interest and understand the business”.

Since Premier was listed in March 2017, AEEI’s shares have risen 97%, with a large chunk of that rise coming after Ayo’s spin-off in December.

Could there be a lesson for Naspers in all of this? Some shareholders have called for it to unbundle its Tencent stake to unlock value.