Capitec tumbles 12% as confusion reigns

Questions raised over Viceroy’s ties to hedge funds Share vulnerable to ‘technical trading’

Capitec’s share price fell 12.6% on Wednesday to close at R800.60, as confusion reigned among market participants after a blistering report issued on Tuesday by short sellers Viceroy Research.

Meanwhile, questions have been raised as to whether Viceroy Research has ties with overseas hedge funds.

The stock’s fall belied the views of fund managers and analysts who have distanced themselves from Viceroy’s findings. Denker Capital’s Kokkie Kooyman said Capitec was “still not African Bank”.

“Capitec has since inception been very prudent in making adequate bad-debt provisions as soon as a client misses a payment,” Kooyman said.

In an explosive report released earlier this week — in which Capitec became Viceroy’s second South African target after Steinhoff — Viceroy claim that Capitec should immediately impair R11bn (about 14% of the bank’s assets) to reflect its true bad debts.

Capitec has dismissed this, saying Viceroy’s estimates did not accurately calculate client repayments or default rates.

While Benguela Global Fund Managers was concerned about the substantial rescheduling of Capitec’s arrears, primarily relating to issues of disclosure and ethics, Viceroy’s numbers did not add up, said chief investment officer Zwelakhe Mnguni.

“To say that Capitec could go bankrupt and needs to be placed under curatorship is just outrageous. We’ve looked at the numbers and we couldn’t find anything that suggests that Capitec’s solvency or liquidity is at risk.”

The weakness in the stock reflected its full valuation and confusion in the market about Viceroy’s allegations, said Renier de Bruyn, an investment analyst at Sanlam Private Wealth. The wealth manager had advised clients to sell Capitec some time ago, based on its valuation. “Not a single element mentioned in the Viceroy report contributed to our decision. We have always considered Capitec to be prudently managed,” De Bruyn said.

The share had become vulnerable to “technical trading”

when it started to trade below the R960 level, which signalled a change in the bull trend.

Capitec has three “buy” ratings, two “holds” and four “sells” among rated analysts. Share price targets range from R780 to R1,074 – or about 34% above its current level.

Such unusually disparate views indicated that there was “a lot of emotion” in the stock, said David Shapiro, deputy chairman at Sasfin Securities.

Meanwhile, more questions have been raised about whether Viceroy is working in concert with hedge funds after Summit Financial Partners CEO Clark Gardner said he had been contacted by US and UK hedge funds in 2017. Summit is taking Capitec to court on behalf of consumers who it says have been victims of reckless lending. “I agreed to speak to one hedge fund manager, who asked about our court cases. I sent her the documents, but I never spoke to Viceroy,” Gardner said. “It seems as though Viceroy is a syndication of hedge funds.”

Viceroy strongly denied this, saying it was funded internally. All the information in the report had been obtained from Summit’s website, it said.

But Gardner said he had shared information with hedge fund Safkhet Capital, which was not available on Summit’s website yet seemed to be contained in Viceroy’s report.

New York-based Safkhet Capital is a concentrated shortonly hedge fund that began trading on January 16. Its 26year-old founder, Fahmi Quadir, trained under shortseller Marc Cohodes,

Bloomberg reports. Cohodes is a self-professed friend of Viceroy founder, Fraser Perring. “We have no commercial relationship with Viceroy. We know of Viceroy and Fraser Perring and think highly of their integrity and research abilities,” Quadir told Business Day.

Safkhet conducted “forensic research to understand potential fraud and abuse of the markets and the public”, she said. “We do not take public positions nor do we publish research.”

Gardner was scathing in his assessment of Viceroy’s report. “I think the report is very reckless. Viceroy has ridden off the back of sentiment garnered following its Steinhoff report and is now going reckless on a deposit-taking institution. That is raw capitalism at its best.”

Viceroy said it was working on a response to Capitec’s stock exchange announcements.