JOHANNESBURG – Some traders and investors in Mauritian-based investment company Astoria have taken to social media to voice their anger about a share option incentive scheme for executive directors calling it “shameless plundering”.
The company, whose investments are run by Anchor Capital, listed on the JSE’s Alternative Exchange in November last year at R14.49, but its share price has dropped roughly 24% since listing. It closed at R11.03 on Friday.
The company announced on Thursday that a share option scheme that permits the listing of up to 25 million ordinary shares has been approved, which could be offered for subscription to its executive directors. A cap is applicable at the lesser of 10% of the total issued share capital and 25 million shares. No price was disclosed.
“The purpose of the scheme is to attract, motivate, reward and retain executive directors who are able to influence the performance of the company, on a basis which aligns their interests with those of the company’s shareholders,” it said.
But commentators were not convinced.
— Karin Richards (@Richards_Karin) September 16, 2016
Indeed. And as was said yesterday, are they buying at the price we did? It’s disgusting, when we have lost so much. https://t.co/SFT3i22cNZ
— Caroline Graham (@Caro1Graham) September 16, 2016
@SimonPB Was a panic-buy for me after Nene-gate, but I also bailed out long time ago, luckily around the R12.50 levels…
— ゾンビにゃん (@taihenzombii) September 16, 2016
Simon Brown, founder of JustOneLap, says Astoria is potentially offering as much as 10% of the issued share capital to executive directors – a “humongous” quantity of shares.
Executive directors can subscribe for these shares, but shareholders don’t know at what price.
“That to me is just a lack of governance.”
Brown says if it was 0.5% of the total issued share capital and no price was disclosed it wouldn’t have been such a big concern, but 10% is potentially a massive dilution to shareholders. The lack of disclosure means that shareholders have no understanding of what the potential dilution is.
“I can price risk if they told me what the potential dilution is, but this gives me chronic uncertainty, with a potential 10% overhang lurking around.”
The company’s last set of numbers indicated a significant amount of money was set aside to incentivise directors, Brown says.
“Do we need to give them even more?”
Brown says the current developments don’t take cognisance of shareholders.
He says as a shareholder he is “deeply offended” by the fact that Astoria will issue shares to directors without telling shareholders what it thinks a fair price would be to issue it at.
Brown says one of his key investment requirements is to invest in companies with amazing directors who look after shareholders as best they can.
Peter Armitage, non-executive director of Astoria and CEO of Anchor Group, says all listed companies have share option schemes.
“This is just the issue of a share option scheme – no share options have been issued.”
He says the board of directors would never make a share option issue, which is uneconomic, or which they felt would be inappropriate. As the company only has two executive employees, it is immaterial for the economics of the business at this stage.
“I can assure you it won’t materially affect the NAV [net asset value].”
The basics of the share option scheme are that shares would be issued at a 30% discount to the volume weighted average price (VWAP), if they are issued.
“This is just a registration of a scheme…. The key comes in when the board actually issues share options and on what basis and obviously if they were to do it, they would have to take into account the share price and where it is to net asset value etc,” he says.
When asked why it didn’t disclose pricing in the announcement, Armitage said they didn’t know what the price would be.
“The price is based on where the share price is. So when we issue options, that is the time that the price is set. There is no price at the moment because there’s no options.”
Armitage says the company is 100% transparent and is happy for people to see the share option scheme.
“I think it is a fairly standard share option scheme.”
The company is committed to publishing the scheme on the website as soon as possible, he says.
They are concerned about the drop in Astoria’s share price, but ultimately Anchor Capital is responsible for the investment performance of the underlying investments and they are “very happy” with how it is performing.
In time the share price will track what happens to the underlying net asset value per share and he is comfortable with that performance, he says.
Amelia Morgenrood, portfolio manager at PSG, says share option schemes are somewhat of a double-edged sword. Companies such as Astoria, that are dependent on intellectual capital for their performance, often have no other choice but to reward directors in this way or risk losing them.
At the same time, the cost implications for shareholders can be difficult to swallow.
She says Astoria attracted significant interest during its listing last year, as it offered an unique investment opportunity at a time when the rand was quite weak already. As a result, many investors – she included – lost sight of the fact that it could trade at a discount to its net asset value (NAV).
Morgenrood says Astoria’s share price performance is a function of the discount to NAV and the appreciation of the rand and not of Anchor’s management of the portfolio.
Investors often want an immediate return on investment instead of staying invested for the long-term, she says.
She does not consider selling at this point, but is buying shares.
Astoria was the most popular stock pick in the 2016 Moneyweb stock pick competition.
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