Following the public release of a letter that it sent to Capitec earlier this month to raise concerns about the bank’s rescheduling of arrears loans, boutique firm Benguela Fund Managers has written to its clients to clarify the reasons for this engagement. It has also given its views of the Viceroy report released earlier this week.
Benguela’s chief investment officer, Zwelakhe Mnguni, made it clear that “while shareholder activism should be welcome in our market, we have some serious reservations on the Viceroy approach and several assertions made in their report”.
“It is totally unfair to challenge a company’s business practices without giving it a right of reply,” Mnguni noted. “This is the gold standard of professional engagement with companies.”
He added that while “corporate shenanigans should be exposed”, we should not allow price manipulators to drive stock prices.
“Shorting a stock is not illegal but giving it bad publicity because one has shorted or intends to short a stock is totally unacceptable,” Mnugni wrote. “Like the irregularities that a researcher may be seeking to expose, the untruthful attack on a company could cause severe damage to other investors’ interests.”
Mnguni also argued that Viceroy’s claim that Capitec should immediately be placed under curatorship was “shocking and irresponsible”. He believes that if Viceroy had information that supported this view, it should have gone directly to the authorities.
“Benguela totally condemns the Viceroy approach to raising governance issues and it appears to be motivated by pure greed [more] than actual interest in the company,” Mnguni said. “There is also a question that needs to be asked about Viceroy’s intense focus on the SA market. Is our company disclosure so good that it is easier to find issues in our stocks than in stocks listed in other major global exchanges? It is particularly baffling when one considers that the JSE is less than 1% of the global stock market capitalisation and that the company shorting stocks is US based (the biggest capital market in the world).”
Benguela’s engagement with Capitec
In the letter to clients, Mnguni also explains the reasons for the letter he penned to Capitec on January 19. This specifically deals with Capitec’s practices related to the rescheduling of loans.
“The rescheduling of current loans is a common practice in banking,” Mnguni explained. “The letter is detailed and is based entirely on publicly-available information contained mostly in Capitec annual reports. While we generally keep these engagements confidential until some time after engagement, we are deviating from this norm for transparency purposes.”
However, this does not mean that they support all of the views expressed by Viceroy, or the method they have used to do so.
“Our concerns revolve around the rescheduling of arrear loans only, the related financial impact of the practice, and how these are reported on in the annual financial statements,” Mnguni said. “Having looked at the financials in detail, we can confirm that from our analysis there is no reason to be concerned about Capitec’s liquidity or solvency. Our position is that Capitec is a healthy bank with certain practices that may be questionable but certainly not a bank about to collapse.”
Read the full letter to clients here.
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