African Bank Investments Ltd. (ABL)’s 95 percent stock plunge has been no surprise to some investors who borrowed a fifth of the lender’s shares in anticipation.
Almost 20 percent of the lender’s stock was on loan as of Aug. 7, compared with the 0.95 percent average for South African equities, according to data compiled by London-based Markit Ltd. (MRKT) Short-sellers borrow shares and sell them, expecting to buy them back later at a lower price for a profit.
South African’s largest supplier of unsecured loans plummeted after it said on Aug. 6 its founder and chief executive officer resigned, losses will be at a record and it requires more than 8.5 billion rand ($796 million) of additional capital. Among the investors to bet against the stock is Johannesburg-based 36ONE Asset Management, which has had short positions over the past two years.
“We are not taking any pleasure in African Bank’s demise but we have been positioned to benefit from the mis-pricing of their securities,” Jean Pierre Verster, who helps oversee the firm’s 4 billion-rand hedge fund, said by telephone on Aug. 7.
That day, the amount of African Bank Investments’s shares on loan totaled three-fourths of all shares that can be borrowed from lending programs, according to Markit.
The shares are “very heavily borrowed,” said Alex Brog, a spokesman for Markit. “This means it would be hard and expensive to short any more of the stock.” In November, as much as much as 25.3 percent of the bank’s stock was on loan.
Verster said that on occasions over the past two years taking short positions became more expensive as demand increased, implying more investors were making the same bet.
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