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Netcare CEO forced to dump shares worth R200m

Price slump wipes out his entire stake in the group …

Netcare CEO Dr Richard Friedland has been forced to sell 10.4 million shares in the private hospital group – practically his entire holding – to cover “finance charges” as well as other costs relating to their acquisition “over several years”. The sale was forced due to a sudden slump in the group’s share price, meaning it is highly likely the position was leveraged. It is down 37% over the past year (from around the R30 level), with a sharp slide in the past week which took the price below R20. This triggered the sale in two tranches, the first at a low of R20 was valued at R27 million, the second at a low of R19 was valued at R173 million.

The group was compelled to make a highly unusual statement to the market alongside the notification of the share trades. It said on Wednesday afternoon that “The board wishes to confirm that Dr Friedland remains absolutely committed to Netcare. Dr Friedland has confirmed his intention to remain in office as CEO to oversee the implementation of the revised strategy, a key component of which is digitisation, until at least the end of 2022”.

Read: Netcare warns on hospital margins

The group’s 2018 annual report notes that Friedland had 10 387 444 shares at the end of September 2018. The total sold this week was 10 423 163. He would’ve likely been allocated additional shares during the 2019 financial year. At the end of September, Friedland had another 1.4 million forfeitable shares.

This is not the first instance of directors being forced to sell their shares on the JSE due to a drop in the share price. In December 2017, then EOH director Jehan Mackay was forced to sell R163 million worth of stock when the group’s share price plummeted from over R80 to under R30. John King, then also a director, was forced into sales totalling R16.3 million at the same time.

These transactions were described by the group as forced sales “of shares on [the] market actioned by a financial institution due to the shares being linked to an equity finance transaction resulting in a margin call”. In these kinds of situations, the forced selling triggers (abnormal) panic amongst market participants which perpetuates the slide, triggering yet more forced selling.

Similar situations have occurred in the past year at MTN Group and at Ascendis Health, with numerous instances of ‘forced’ sales at other companies over the last decade, including high profile cases involving Invicta and Vox Telecom.

These cases illustrate the risk of leveraged share purchases by directors. Last month, Shoprite CEO Pieter Engelbrecht took a leveraged bet on the group’s share price. He purchased R20 million of exchange-traded contracts for difference (eCFDs) in a long position with his own money in what seems to have been an effort to signal confidence.

Read: Shoprite CEO takes leveraged bet

The JSE has weighed in on the disclosure of these kinds of transactions. In a discussion document released in September last year, it said it had noted “recent transactions in securities relating to directors where (i) pressure was placed on the share price of the issuer’s securities and (ii) the market was unaware of the arrangements that resulted in the transactions”.

The document, titled “On possible regulatory responses to recent events surrounding listed issuers and trading in their shares”, highlighted that “Paragraph 3.63 and 3.64 of the listings requirements require an announcement of certain transactions in securities (including off-market transactions) relating to an issuer by or on behalf of (i) a director, (ii) the company secretary and (iii) any of their associates (an “affected party”).”

It said that submissions to the exchange had “asked for more transparency on transactions where shares held by directors have been used as collateral/guarantees as security for financial commitments. The JSE is aware that certain transactions in securities by an affected party involve using securities as collateral for a financial obligation or otherwise.”

It noted, however, that “currently, disclosure is only required at the time of perfection of the security/guarantee and not at the time that the arrangement is entered into.”

The JSE said it is considering two changes to the disclosure of these transactions.

Firstly, it “is considering enhancing disclosure of these arrangements as an announcement to be made pursuant to the provisions of paragraphs 3.64 of the listings requirements at the time that the arrangement is concluded, in addition to the disclosures currently required. Given that the above arrangement may impact a director’s interest (directly or indirectly) in an issuer, the JSE would also consider requiring the necessary disclosure to be carried across into the annual report of the issuer.”

Secondly, it “is further considering expanding the overall dealings in securities provisions to include senior management of the issuer.”

Last month, it proposed amendments to the listing requirements to “clarify” that the above types of transactions “in securities will be regarded by the JSE as a transaction in securities pursuant to paragraphs 3.63 and 3.64 of the requirements and will accordingly require an announcement pursuant to the new paragraph 3.64(h) of the requirements, in each of the following circumstances when –

(a) the arrangement is agreed;

(b) the right or discretion afforded to the lender is being

exercised; and

(c) an existing arrangement is amended or terminated.”

It said the (Sens) “announcement must disclose the nature, term and amount of the financial obligation as well the number of securities offered as security/guarantee”.

Comments on these proposed amendments can be submitted until tomorrow. It is expected these amendments will come into effect later this year.

Netcare reported interim results to end-March last week. It said normalised Ebitda (removing the former UK operation as well as other exceptional items from calculations) was up 1.3%, with adjusted headline earnings up 2.4%. It said, however, “the challenging healthcare landscape is expected to continue into the second half of FY 2019” and that it expected “full year growth … to be lower than H1”. It also said that Ebitda margins would be “under pressure in H2 2019”.

* Hilton Tarrant works at YFM. He can still be contacted at hilton@moneyweb.co.za.

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Couldn’t happen to a nicer person, ha ha.

He is the same man whose hospital group ran an organ harvesting scheme.

He got off scot-free, while the doctors were blamed.

The fact that no heads rolled at Netcare at a corporate level when they were abusing the quality of the private healthcare system in SA to traffic illegally in vital organs is astounding.

Maybe the good Doctor should have stuck to doctoring and not finance. This happens when you are greedy in the market it kicks you in the teeth.

I paid R34 for my Netcare shares and sold them at R22 in November 2017. This taught me two very valuable lessons: (1) Never believe anything which the analysts say in their “wisdom.” (2) Your first loss is always your best loss.

It is a terrible position for a shareholder to be in when the person entrusted with the skilful management of the company later turns out to the one who exerts the most selling pressure on share prices.

We see this quite often. The manager or board member believes in his business model. This is good. Then the “gambler monster” whispers an idea into his ear. “If you are this good, why do you not use gearing to own even more of these winning shares?” Well, in theory, this is an excellent idea. You know the ins and outs of this business right? Why not capitalise on your privileged access to inside information?

The reality is that there is a huge difference between the crucial skill sets of managers on the one hand and of speculators on the other hand. The power of compound growth makes “time in the market” the best fund manager. The investor who uses gearing, who buys with borrowed funds, is short of time. A relatively small negative move in the share price can cause a forced liquidation of the position.

Gearing means that you do not have time on your side, you are short the best fund manager. Those investors who use gearing are betting against the “best fund manager”. Time wins 95% of the time. That is why 95% of all speculators who use gearing, lose their capital within 12 months.

The 5% who survive obviously have a skill set that enables them to outperform time….for the time being….

Facts: Friedland certainly is not a nincompoop. The details of this “forced sell” we dont know, but very unlikely that he would have gambled with own money. BMI/GHG (UK) ringfenced from SA NTC to “protect ” NTC SA.Worked out nicely, sell BMI/GHG opco , retain the PROPCO , nicely registered on Isle of Man , each property in its own company. NHI has been threatening for 10 years, SA has became more and more socialist over past 3 years.How many shares did F. retain in the UK operations–we will never know.My guess is substantial.So in the end , did the UK operations not effectively dump NTC SA , and did Friedland not conveniently cash in his shares when he saw the political/NHI/socialist writing on the wall? I would have if I were him , and he is not your average businessman

btw a nice SHS pattern that developed over the past 3 years
And may be gigantic SHS if you look at the 10 year chart ?Just asking

Yes. target R10. We see many bearish patterns on the JSE. The ANC is toxic.

Glad nie verbaas dat hierdie maatskappy nie goed doen nie – Christiaan Barnard Hospitaal – ek sal wraggies nooit self weer daar, of as ‘n pasieënt by Netcare wil wees nie. Ek het op Sondagaand 12 Mei toe ‘n kollega van ‘n groot oorsese konsultasiemaatskappy sy voet gebreek het, op my kredietkaart ‘n aanvanklike betaling gemaak van R50,000. Die reisversekeringmense het die volgende dag die rekening se betaling oorgeneem en al die nodige vorms is voltooi en betaling gereel. Ek wag nou nog om te hoor of my terugbetaling gedoen is na vele oproepe. As die staf nie halfdag werk nie is hulle met middagete, en die een het heeltemal ‘n ander storie as die ander een. Ek weet nie of dit bekwaamheid of etiek is wat skort nie, of beide dalk nie, maar hulle sit lekker en broei op my R50,000.

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