Benguela joins Viceroy in questioning Capitec

Benguela Global Fund Managers wrote to Capitec Bank Holdings earlier this month questioning its practice of rescheduling loans to clients, deepening the controversy around the lender after a short seller alleged it was concealing write-offs.

Boutique investor Benguela raised concerns about Capitec’s “aggressive practice of rescheduling arrear loans and advances,” according to a letter dated January 19 and seen by Bloomberg. “We believe this practice has distorted the true performance of your business and warrants some review,” the letter said.

Capitec, which makes unsecured loans mainly to low- and middle-income households, posted its biggest-ever intraday share drop on Tuesday after Viceroy Research alleged it was concealing significant write-offs. 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.

Speaking at 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.

Capitec spokesman Charl Nel didn’t immediately respond to a message or a text message left on his mobile phone outside of office hours early Wednesday morning.

Shore Up Performance

In its letter addressed to Capitec senior management, Benguela said the rescheduling of loans that clients were struggling to pay distorted Capitec’s performance and that since 2013 “arrear rescheduling has contributed to about 50% of reported growth in headline earnings per share.”

Benguela requested a response from Capitec by February 5.

“We are concerned that the rescheduling process has helped shore up the performance of the executive,” Benguela Chief Investment Officer Zwelakhe Mnguni said in the letter. Benguela doesn’t currently hold any Capitec shares, it said.

Capitec, South Africa’s best performing stock of the last decade, fell as much as 25% in Johannesburg on Tuesday before closing 3% lower.

- Bloomberg