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Shoprite up on news Christo Wiese has not sold shares

Shoprite’s share price on Thursday recovered some of the ground it lost the previous day when it became apparent its single largest shareholder, Christo Wiese, had not sold any shares but had provided increased security for bank loans. The share closed 1.57% firmer at R215.30.

A Bloomberg news report that Wiese had placed 17-million Shoprite shares with institutions sparked jitters and knocked the share price from R224.89 to a six-month low of R211.98.

However a Sens announcement released by Shoprite on Thursday indicates that Wiese has not sold the shares but has put in place a so-called price-protection collar, designed to protect the value of 17-million Shoprite shares provided by Wiese as collateral for loans.

A Bloomberg news report that Wiese had placed 17-million Shoprite shares with institutions sparked jitters and knocked the share price from R224.89 to a six-month low of R211.98.

However a Sens announcement released by Shoprite on Thursday indicates that Wiese has not sold the shares but has put in place a so-called price-protection collar, designed to protect the value of 17-million Shoprite shares provided by Wiese as collateral for loans.

The Sens announcement provided shareholders with little clarity but did give the details of an option programme, which is designed to protect Wiese’s banks from significant weakness in the Shoprite share price until June 2020.

Wiese was not available to shed light on what was behind the complex option programme.

The options are underpinned by 17-million Shoprite shares owned by Wiese-controlled Titan that have been provided as collateral. At the initial price of R210 set by Titan, the 17-million shares are valued at R3.6bn.

Business Day was unable to confirm whether the security was for existing loans or for new loans, but a number of analysts speculated they were for existing loans that might be maturing and needed to be rolled over.

In December 2017, shortly after the announcement of alleged accounting irregularities at Steinhoff, Wiese’s banks suffered a hefty loss when they sold a large portion of Steinhoff shares that had been used by Wiese to secure margin loans.

"It’s possible Wiese won’t have to sell any of the 17-million shares; the collar he’s put in place protects the valuation," said retail analyst Syd Vianello, adding that it was evident the banks were very keen to ensure they were well protected from any unexpected weakness in the Shoprite share price.

While the programme is designed to protect Wiese’s banks from a collapse in the Shoprite share price, the cost of that protection causes Wiese to lose out on any significant gains in the Shoprite share price over the period.

The Shoprite share has managed to escape the damage wreaked on other companies connected with Wiese.

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