(Bloomberg) -- Benguela Global Fund Managers (Pty) Ltd. wrote to Capitec Bank Holdings Ltd. earlier this month questioning its loan practices, even before a short seller alleged the South African lender was concealing write-offs.
Benguela, which manages 3.6 billion rand ($301 million), raised concerns about Capitec's “aggressive practice of rescheduling arrear loans and advances,” according to a letter dated Jan. 19. In a separate letter to its investors, Benguela said it had “serious reservations” about Viceroy Research's approach and its assertion that Capitec should be put under administration was “shocking and irresponsible,” after the short seller released a report about the allegations.
Capitec, which makes unsecured loans mainly to low- and middle-income households, posted its biggest-ever intraday share drop on Tuesday after Viceroy alleged it was hiding write-offs by refinancing defaulted loans with new debt. It then recovered most of those losses after South Africa's central bank said it has no evidence to suggest the lender's stability is in question.
“Benguela totally condemns the Viceroy approach to raising governance issues and it appears to be motivated by pure greed than actual interest in the company,” Chief Investment Officer Zwelakhe Mnguni said in his letter on Tuesday.
Full Disclosure
Speaking at a press conference in Cape Town late Tuesday, Capitec Chief Executive Officer Gerrie Fourie declined to answer questions about whether it had received a letter from Benguela and said he would respond next month. Fourie also denied the allegations made by Viceroy and said the report was full of inaccuracies.
A spokesman for Capitec said on Wednesday that the lender is busy with its response to Benguela. Viceroy didn't immediately respond to an emailed request for comment.
Capitec discloses “all our figures of rescheduling in a transparent way,” Chief Financial Officer Andre du Plessis said in an email on Tuesday. The company has “absolutely” no plans to take any additional writedowns because it already does a detailed analysis of its book at a weekly credit committee, he said.
Viceroy said Capitec may have to write down its loan book by 11 billion rand to “more accurately represent delinquencies and risk.” Benguela said Tuesday that “even with our worst case assumptions, we cannot arrive at the Viceroy impairment provision of 11 billion rand.”
‘Healthy Bank'
In its letter addressed to Capitec's senior management earlier this month, Benguela said the rescheduling of loans that clients were struggling to repay distorted Capitec's performance and that since 2013 “arrear rescheduling has contributed to about 50 percent of reported growth in headline earnings per share.” Benguela, which doesn't own Capitec shares, requested a response from Capitec by Feb. 5.
Benguela's Mnguni reiterated that the firm is a long-only fund manager and never benefits from falling share prices in his note on Tuesday.
“There there is no reason to be concerned about Capitec's liquidity or solvency,” Benguela's Mnguni said. “Our position is that Capitec is a healthy bank with certain practices that are questionable but certainly not a bank about to collapse.”
Capitec, South Africa's best-performing stock of the last decade, fell as much as 25 percent in Johannesburg on Tuesday before closing 3 percent lower. The stock was down 4 percent by 9:42 a.m. in Johannesburg on Wednesday.
To contact the reporter on this story: Antony Sguazzin in Johannesburg at asguazzin@bloomberg.net.
To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Renee Bonorchis
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