Short-seller Viceroy Research\u2019s damning report on Capitec Bank Holdings Ltd. may have been the talk of South Africa\u2019s markets this week, but its devastating impact on the firm\u2019s shares is already waning.<\/p>\n
Several analysts have increased their ratings on Capitec since Viceroy issued a report questioning the state of the company\u2019s finances Jan. 30. The report hastened a drop in the firm\u2019s shares, which plunged 25 percent in the four days through Wednesday.<\/p>\n
The stock rose for a second day on Friday in its biggest two-day gain since 2004, retracing more than half its losses.<\/p>\n
The rebound came after Capitec said customers are sticking with the bank and the National Treasury called for a probe into the \u201creckless\u201d way in which Viceroy criticized the company\u2019s lending practices, only to profit from bets against the stock.<\/p>\n
A roundup of the analyst calls:<\/p>\n
Some analysts were scathing about Viceroy\u2019s motives in publishing the report.<\/p>\n
\u201cViceroy is not an independent and credible research firm,\u201d said Iraj Abedian, head of Pan-African Investments and Research Services, an associate of New York-based Global Source Partners Inc., who has advised the South African government on economic policy. \u201cShort-selling is not illegal, but pretending to be a research house while they\u2019re a hedge-fund operator, making money in a predatory style, is breaching the codes of ethics.\u201d<\/p>\n
\u2018Shoddy\u2019 Analysis<\/strong><\/p>\n Viceroy founder Fraser Perring responded to the criticism from the Treasury late on Friday, saying in a phone interview that it was \u201cironic that they would prefer to take the company\u2019s stance without checking if the information is accurate”.<\/p>\n Capitec\u2019s shares rose 9.4 percent Friday in Johannesburg, extending their gains over the past two days to about 15 percent. Short interest in the stock increased to 1.28 percent of the shares outstanding on Jan. 31 from 1.16 percent on Jan. 26, when Capitec started falling, according to IHS Markit data.<\/p>\n \u201cAfter covering the stock for almost a decade, we have found Capitec\u2019s accounting practices generally to be conservative and the loan book more than adequately provided through various credit and economic cycles,\u201d JPMorgan\u2019s Storey and analyst Behrin Naidoo said in a note to clients dated Jan. 30. \u201cNone of the allegations leveled against Capitec is new news, and investors that have followed the name for a while would recognize that.\u201d<\/p>\n In its report on Tuesday, Viceroy, led by a former U.K. social worker and two Australians, accused Capitec of refinancing defaulted loans with new debt. It said the state should place the finance company into curatorship. Capitec described the analysis as one-sided and inaccurate in press conferences, interviews and statements and responded fully to each of the allegations on its website.<\/p>\n \u2018No Basis\u2019<\/strong><\/p>\n The central bank and National Treasury didn\u2019t see the same risks as Viceroy. The central bank issued a statement Tuesday saying that it had no evidence to suggest the lender\u2019s stability was in question, while two days later, the Treasury said \u201cthe Viceroy report provides no basis to put any bank under curatorship.\u201d<\/p>\n South Africa\u2019s Financial Services Board is investigating potential market abuse and breaches of the Financial Markets Act regarding Viceroy\u2019s report into Capitec, Solly Keetse, a spokesman for the Pretoria-based regulator said in an email on Friday. The Johannesburg Stock Exchange hasn\u2019t yet handed over any report on Capitec to the FSB, he said.<\/p>\n The intention of short-sellers \u201cis not to do good,\u201d said Abedian, who is also chairman of Fortress REIT Ltd., the country\u2019s worst-performing property stock this year. The real-estate industry has been battered by concerns they may be targeted by short sellers. \u201cThey cause instability and they abuse fault lines within the regulatory market to cause instability and serious financial harm to the retail investors.\u201d<\/p>\n
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