the g spot
Capitec’s Michiel le Roux hedging his bets
Capitec co-founder Michiel le Roux has raised eyebrows again after hedging a portion of his Capitec shares. But Capitec financial director André du Plessis says Le Roux has done nothing untoward
Capitec co-founder Michiel le Roux has raised eyebrows again after hedging a portion of his Capitec shares — effectively buying himself insurance against a downturn in the share price — just as Capitec issued a profit warning last month. The JSE is now looking into the trade, but Capitec financial director André du Plessis says Le Roux has done nothing untoward. We asked him about the sequence of events.
AdP: I don’t think we did anything wrong. What happened is that Michiel had a hedge transaction, which he did in 2017, and the hedge was rolled over. So he asked us for permission to do the hedge on May 4, which was two days after we released our results. There was nothing that Michiel knew that the market didn’t know either. We made it very clear during our results presentation that Covid-19 will affect Capitec as well as most other organisations.
With a hedge transaction, typically a person signs a contract with a counterparty … Our chair gave him clearance on the 4th, and he signed the contract. Now, from the 4th to whatever date the transaction is completed by the counterparty, we cannot act. Even if we gave him information the next day, he could not cancel that contract because then he would be acting on insider information. I think it was just unfortunate timing that they completed the transaction on the 28th, and the 29th happened to be the day of our AGM, at which we informed the market that our profit would be down by at least 20%. The next day it was announced that his hedge was complete. That also applies to [board member] Chris Otto’s hedge.
All Weather capital’s Shane Watkins was quoted on Moneyweb as saying that approval for Le Roux should have been rescinded given the change in Capitec’s circumstances. I imagine that you disagree?
AdP: I do, because the moment more information came out, if Michiel had acted on that, I believe he would have done so with inside information. And I don’t even believe the bank or counterparty would have accepted it at that point. They would then have acted on information, either to their detriment or to their benefit, which would make them an insider as well.
On the matter of directors hedging shares, or entering collar transactions, there’s a view that it’s just wrong: it can backfire, it’s financial engineering, a director should just sell stock if they want to raise capital. What do you think?
AdP: The bottom line is that the holder of the stock can do whatever they want. We as a company cannot say: "You can’t do that." We may say we don’t like it, but legally we cannot stop any director from buying or selling or taking a hedge if they’re not acting on insider information. There are many people in the market who feel very strongly about this and are talking to the JSE to say large holders or directors shouldn’t do it. But we’ve got no legal ground to stand on. It’s their money and their risk.
The other thing is that in hedging you’re not actually selling the share: you’re buying insurance at the top or the bottom end.
Again, we as fellow directors cannot advise what someone must do with their money.
You do have a right to speak your mind on an issue, though? Are you comfortable with directors trading their shares?
AdP: I think it will be wrong for me to make a point like that, because if I say I think it’s wrong, effectively I’m saying Michiel shouldn’t do it. I’m not going to even try to make a judgment call on that. As I said, we have had discussions and there are different viewpoints.
Isn’t this a minefield — not just for companies, but for the JSE too? How could one change it so it isn’t?
AdP: Well, I think it will probably always be a minefield unless the JSE says: "You’re not allowed to." But I’m not sure they even can. If I have R100 and you think I have to buy food but I want to buy a bottle of wine, can you say to me I’m not allowed to? It’s my money.
The same, I suppose, goes for share lending. Should a director support short sellers? My view is that it should not happen, but there are other directors who feel, well, if I can make money by lending scrip, why not?
Things have turned sour quite fast given the warnings we’re seeing on rising bad debts. Is it worse out there than you expected?
AdP: Well, you make mention of banks, but every single company in SA has been affected by the lockdown. On the payment holidays, I believe all the banks are in exactly the same position. If you give a payment holiday for three months and everyone starts paying after that, it’s just a deferment … It will really start showing when everything comes back to normal and people go back to their jobs and pay or don’t pay. So the jury is still out as to what the exact effect of the lockdown will be on every company.