Damning report is full of errors, says reeling Capitec
Capitec wasted no time in tackling what it said were “factual errors” made by Viceroy Research in a bruising report the short-sellers issued on Tuesday, which sent the stock 25% lower in intra-day trade. It closed 2,96% weaker at R915,92.
Viceroy’s report was riddled with “opinions” not informed by accurate information, said Capitec CEO Gerrie Fourie. Viceroy, which was betting on the share price falling by shorting the stock, had not verified any of its assumptions with Capitec. “We have instructed our attorneys to take it up with the Financial Services Board (FSB) because we are not happy with the way they go about it.”
But Viceroy’s Gabriel Bernarde said that it did not see “being wrong” as a probability, which is why it had not contacted Capitec. “We go to pretty extensive lengths to back-test our assumptions.”
Viceroy shot to prominence in December when it issued a report on “Steinhoff’s skeletons”, a day after the retail group admitted accounting irregularities meant its auditors could not approve annual financial statements. Viceroy’s report uncovered a web of off-balance sheet transactions, which it said Steinhoff used to hide losses and inflate earnings.
Naturally, the market was jittery when Viceroy took to Twitter in January to say it was working on another South African name. The share prices of pharmaceuticals firm Aspen and property company Resilient, among suspected targets, took a beating.
Few investors had suspected that Capitec - up 351% since African Bank’s collapse - was Viceroy’s next victim, but speculation grew after the share fell 8% on Monday on no news.
“Bloomberg contacted me on Monday requesting an exclusive interview on Tuesday”, but declined to provide details, said Fourie.
Trading ahead of the release of Viceroy’s report would only be considered “insider trading” if it were based on information not available publicly, said the JSE’s director of market regulation, Shaun Davies. If Viceroy’s report contained inside information, any suspicious trade in the shares would be referred to the FSB.
At the heart of Viceroy’s report is the allegation that Capitec should write off R11-billion to reflect the risk in its portfolio. The bank had artifically kept bad debts down by by issuing new, extended-term loan agreements to delinquent customers in order to repay existing loans.
But Capitec said this underestimated actual loan repayments by nearly R2-billion and incorrectly calculated default rates. “We don’t understand how they are getting to those numbers,” said Fourie.
Viceroy did not appear to have done a detailed analysis, said an analyst who has rated Capitec a “sell” for some time. “You can poke a lot of holes in what they say. It seems like they’re clutching at straws.”
Another analyst said while Capitec’s rescheduling of loans had been raised as a concern for some time, Viceroy’s R11-billion impairment figure was “profoundly incorrect”.
Rescheduling delinquent loans was a common banking practice and had at all times been done legally and under strict rules, said Fourie.
Capitec’s arrears were lower than lenders such as Bayport because it wrote off loans that were 90 days in arrears, while Bayport kept these on its books for 180 days or more, he said.
While Viceroy has equated Capitec with African Bank, which buckled under its bad debts in 2014, analysts say the latter had more aggressive lending and accounting practices.