Capitec CEO Defies Buy Ratings to Sell Stock Before Offer

Riaan Stassen, chief executive officer of South Africa’s Capitec Bank Holdings Ltd., sold almost all his direct holdings in the company in the 12 months ahead of a discounted rights offering as bad debts increased.

Stassen divested 422,780 shares for 88.4 million rand ($10.8 million) in the past year, according to data compiled by Bloomberg and the Johannesburg Stock Exchange. A further 170,000 shares were sold through his trust company DSE Ventures Ltd., which retains a 1.87 percent stake in Capitec valued at 413 million rand, from July through August for 36.2 million rand. In August, Stellenbosch, South Africa-based Capitec published a trading update that missed analyst estimates.

“Riaan is 59 and it’s not healthy to have all your assets in one basket -- his exposure to Capitec is over 400 million rand,” Capitec Financial Director Andre du Plessis said by telephone from Johannesburg on Sept. 28. The sales were “purely because of diversification and his age,” Du Plessis said.

The bank, which specializes in unsecured loans for low-income earners, said last week it planned to raise 2.2 billion rand through an offering at a 22 percent discount to boost capital and fund growth. It will be the bank’s second rights issue in two years and comes as bad loans increased 66 percent to 1.1 billion rand in its fiscal first-half ending August from a year earlier.

‘Red Flag’

“Big sales by directors always raise a red flag,” Craig Pheiffer, general manager of investment at Absa Asset Management Private Clients in Johannesburg, said in a telephone interview on Sept. 28.

More than 70 percent of analysts surveyed by Bloomberg rate the stock a buy. Stassen still has a direct holding of 2,539 shares.

Stassen will definitely participate in the rights issue and followed his rights in total in 2011, according to Du Plessis. As in previous years Stassen has also exercised all of his share options and share appreciation rights, he said.

Capitec, South Africa’s seventh-largest listed bank by assets, announced a first-half dividend of 1.69 rand on Sept. 26, an increase of 35 percent from a year earlier as profit rose 43 percent to 700 million rand, the company said.

It “makes no sense” paying dividends with the one hand and raising cash with the other, Pheiffer said. Absa Asset Management Private Clients doesn’t own the stock on behalf of clients and won’t consider buying Capitec right now, he said.

More Sales

“Even if we missed the dividend, we’d save 170 million rand and that’s not enough,” said Du Plessis, who has sold more than 100,000 Capitec shares this year according to stock exchange information. “In the South African market it’s expected that you issue a dividend, especially when you go to the market often and the profit we make is cash.”

The bank’s capital adequacy ratio at 38 percent in the first half and its 28 percent return on equity outstripped South Africa’s four biggest banks which recorded an average capital adequacy ratio of 15 percent and an average return on equity of 16 percent, according to data compiled by PricewaterhouseCoopers LLP’s Johannesburg unit.

“With the additional shares we will have a capital adequacy ratio of about 48 percent and that will decline over time because of Basel III and our own use of capital,” Du Plessis said. “We should be OK for about three years before having to go to the market again. We said to the bond market we wouldn’t drop below 25 percent and that gives investors additional comfort.”

Capitec’s investors may include the African National Congress, South Africa’s ruling party, the Johannesburg-based Mail & Guardian newspaper said on Sept. 28.

Capitec shares rose 0.9 percent to 218 rand by the close in Johannesburg.

(Corrects story published Oct. 2 to show CEO sold direct holdings in first paragraph and adds value of trust holding in second paragraph.)
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