Christo Wiese to score big from a ‘bet’ on Shoprite shares
After a long losing streak, Shoprite chair Christo Wiese finally struck it lucky in a complex deal.
Wiese lost a chunk of his wealth in the Steinhoff implosion – as did some of the banks who lent his investment companies money. Steinhoff shares, which were used as collateral for these loans, crashed by more than 95%.
Wiese’s investment vehicle Titan Premier Investments also had loans that were underwritten by Shoprite shares. Unnamed banks didn’t want to take any chances - and apparently demanded protection against more losses.
So last year, Wiese placed 17 million Shoprite shares into a so-called price-protection collar.
With this complex deal, he effectively protected himself (and Titan’s creditors) from the Shoprite shares falling below specific levels, starting at R205.80. The price depends on the specific expiry dates of different contracts, which starts on December 17th this year and ends in June 2020.
“At this point in time it looks like there is a very good possibility that the whole lot might expire in the money”, Gryphon research analyst and portfolio manager Casparus Treurnicht says.
In effect, the contracts gave Wiese the right to sell some of the shares from R205.80 (on December 17th) and buy them back in the market at the current price (which is now around R127).
But Jean Pierre Verster, portfolio manager at Protea Capital Management, does not expect that he will exercise these options. After selling billions in Shoprite shares following the Steinhoff disaster, Wiese is now dangerously close to holding less than 10% of Shoprite – which could have big consequences for him. In 2000, Wiese was issued with "deferred" shares, with special voting rights, after Shoprite’s shareholding structure was simplified.
These shares are now valued at R3.5bn – but, according to the 2000 deal, he could lose all of it if his shareholding falls below 10%.
“I expect he won’t exercise the options, but rather negotiate a rollover to a later date,” says Verster.
Treurnicht says what usually happens is that the bank will pay him the difference between the put strike price and the price of the underlying Shoprite shares on the contract close out on that day. According to a rough calculation, that could mean that he would be paid R2 billion by the counterparty, which in this deal is believed to be RMB.
“Wiese had put in a good protection strategy for himself,” says Treurnicht.
This week, Discovery CEO Adrian Gore announced the extension of a similar transaction, in which he hedged R1.4 billion against losses in Discovery’s share price in 2016.
“I consider these transactions a very negative signal," Treurnicht added.
Last month, Shoprite confirmed that Wiese intends to retire next year. He is hugely unpopular among shareholders.
In November, at the company's annual general meeting, shareholders holding more than 61% of ordinary Shoprite shares voted against his re-appointment as director. But Wiese retained his seat on the board thanks to his holding of the deferred shares that have special voting rights.
