Ascendis learns the cost to Coast of risky borrowing
Investor Coast2Coast has been compelled to offload huge amounts of the company’s shares
Ascendis Health, now trading at an all-time low, provides a stark warning about the dangers of borrowing against equity.
The company’s news feed on the JSE is littered with “dealings in securities” statements in which it says mainstay investor Coast2Coast has been forced to offload huge chunks of the company’s shares to meet obligations to lenders.
For Coast2Coast, which has board representation at Ascendis, it is not a pretty picture at all. A year ago, Coast2Coast forked out more than R700m to buy 37 million newly issued Ascendis shares at R20 a piece.
Now, the stock is trading at a paltry price of R3.26 (R3.39).
Unfortunately, Ascendis’s other shareholders are being forced to share in the pain, as Coast2Coast’s forced sales continue to drive the share lower.
Well-known top market commentators have become increasingly critical of directors and investors who hold geared positions in their own stock.
Wayne McCurrie tweeted last week that Coast2Coast’s sales reflect “the danger of borrowing against equity”, while Karin Richards was harsher. “This is ridiculous and totally unacceptable. Directors should spend their time acting in the best interests of the company they serve – not speculating in its shares,” she tweeted on Tuesday.
Anthony Clark said Coast2Coast “should be censured and avoided in any future listings they do, and the JSE should enact rules on this type of dealing, which they have pondered and dithered on for months”.
Perhaps a change in rules is exactly what investors need, particularly in light of how poorly JSE-listed stocks have performed in 2018.