Viceroy Report: No retreat in Capitec short selling
The sustained level shows resistance to the bank’s detailed responses to Viceroy Research’s allegations
The number of shares sold short in Capitec has remained the same, proving resistance to the bank’s detailed responses to Viceroy Research’s allegations that its books were not in order and setting them right would require that the Reserve Bank place it under curatorship.
By Friday morning, between 1% and just less than 5% of Capitec’s 115.6-million issued shares were out on loan to investors who then sold them on, betting on a plunge in the bank’s share price. At the top end of this range, the short positions were worth R4.8bn at Friday’s market prices.
Capitec financial director André du Plessis said the short positions were normal and did not necessarily originate from Viceroy’s report. "Short positions can be taken at any moment and will always be present in the market. People differ in their outlook on the future and [on] market players."
Most … support the business model and principles, and would therefore invest in us. Some may, however, be short sellers
Juan Breytenbach, a trader at Capilis Asset Managers in Johannesburg, said not every market participant bought shares in the hope they would increase in value, or shorted them betting they would lose value. "You get guys in hedge funds who trade pairs — so, long FirstRand and short Nedbank, for example — and they are playing the spread between the two shares. "So irrespective of what happens to the market or currency, they are effectively market-neutral and they run their own strategies on that."
Market-neutral strategies are usually found in equity long-short funds, which aim to deliver returns from good stock selections, while minimising losses from bad bets. Breytenbach said the short position in Capitec could be due to those who had bought (or were long) PSG shares and were bullish on its prospects; and short Capitec due to factors such as market risk.
On Thursday, Capitec released its last statement on the Viceroy matter, which mainly placed all of its responses to the Viceroy report, a letter from Benguela Global Fund Managers questioning its rescheduling practices and a letter from Viceroy to the Reserve Bank motivating for Capitec to be placed under curatorship.
Benguela chief investment officer Zwelakhe Mnguni expressed satisfaction with Capitec’s explanations, while the Bank has not responded to Viceroy’s letter questioning its "support" of Capitec based on the financial statements.
Viceroy did not respond to Business Day on the timing of the second letter or whether it was still shorting Capitec.
"We speak to many portfolio managers, private individuals and analysts about Capitec," said Du Plessis. "Most … support the business model and principles, and would therefore invest in us. Some may, however, be short sellers. Our job is to explain … the company fundamentals and opportunities. From that, investors will make their decisions."