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Controversial IT and media entrepreneur Atul Gupta found himself in the thick of it again after yesterday’s sale of his shares in Comair, the JSE-listed company which operates British Airways and Kulula branded airlines in SA. He owned 4.7% of the company’s equity, bought mostly in 2009 at around 180c a share. Gupta was an unpaid non executive director of Comair, invited onto the board in 2009 by since ousted chairman Dave Novick. Yesterday’s sale of his 22.8m shares netted Gupta R68m, generating a R27m profit on the original investment. Also selling out entirely was Comair deputy chairman Ronnie Ntuli, who personally owned 5.8m shares. The transaction, which went through the market as a single block, was first erroneously reported on SENS as a purchase by Gupta and Ntuli. That was duly corrected. Today it came to light that Comair itself had bought its directors’ shares – apparently not actually knowing its own directors were selling. Or so CEO Erik Venter told us on CNBC Africa today. Lots of unanswered questions. Not least why the unduly haste with which Comair bought the shares at a price not seen since early 2008? Also, reasons for the stock’s steady appreciation in the past six months from just over 200c to its current level; more specifically its 15% jump in the last few days? And why did Ntuli, who is paid R250 000 a year for attending his four board meetings, sell at the same time as Gupta? But mostly what will their fellow Comair director, former SABMiller chairman Meyer Kahn think about all this? We might get some of the answers when the JSE’s Surveillance Department’s releases the report on its investigation into Comair share dealings of the past six months. – AH
ALEC HOGG: Now let’s get onto the story that’s making me Mr Grumpy, and I don’t think it’s just me but many other people as well. Comair has bought back shares from two of its non-executive directors Atul Gupta and Ron Ntuli. The stock was worth R86m. Erik Venter Chief Executive of Comair is with us in the studio. Erik, let’s just go back a little bit. How long have these people been on your board?
ERIK VENTER: They’ve been on since about 2008.
ALEC HOGG: How did they acquire these shares in the first place?
ERIK VENTER: They were originally bought on the market – both those lots were bought on the market. Ron Ntuli is involved in our BEE empowerment deal. These shares are not linked to the empowerment deal. They bought these in addition to the deal that we did, so they purchased them on the market and they’ve held them for some time now.
ALEC HOGG: I can understand Ron. He’s an ex merchant banker/investment banker – the kind of person you’d want on your board. Why Mr Gupta?
ERIK VENTER: Well, he purchased the shares and our Chairman at the time (Dave Novick) invited him to join the board. I wasn’t directly involved in that decision, but that was the Chairman’s decision in 2008.
ALEC HOGG: You’re quoted on BDLive this morning as saying you had no idea why they sold the shares, but you – the company – bought the shares from them.
ERIK VENTER: Yes, we’ve been talking for some time about trying to do a repurchase, but the volumes trading has been extremely small over a long period of time. We suddenly received a call from a broker saying that there are 23 million shares on the market, so we scrambled to try to get them. We don’t even have a broker in place for Comair because we don’t normally do a lot of share action in Comair, so we scrambled to get a broker in place to try to take up these shares in accordance with the mandate that we have for the 10% (of equity) buyback. We were a bit nervous that someone else would snap up the shares in the meanwhile because we had to do a lot of paperwork to even get a mandate in place for a broker to do the purchase. Fortunately, we managed to collect the shares. We did get a few more in the process as well, so we ended up getting back – in total – about 6.1 percent. It wasn’t anticipated that we would see this volume on the market so quickly, so it was a bit of a scramble to get the process in place to do the buyback.
ALEC HOGG: Hang on. I’ve served on a couple of listed companies’ boards. Before I was able to sell shares as a Director, I first had to ask permission of the Chief Executive or the Chairman of the company. Did this not happen?
ERIK VENTER: We did receive the request for permission, but it was within minutes of the shares going on to the market. When I first heard about the shares going on the market, I didn’t even know that permission had gone through to our office. Our secretary had received the permission, but they’d put the shares on within minutes of putting the permission through.
ALEC HOGG: The point is that you didn’t know that they were selling, but the company knew. Who in the company knew?
ERIK VENTER: Our company secretary.
ALEC HOGG: Does your company secretary then give permission?
ERIK VENTER: No, he would deal with all the paperwork.
ALEC HOGG: He surely can’t give permission unless it goes through the Chairman or the Chief Executive. Did the Chairman know?
ERIK VENTER: Yes, all the due process was followed in terms of getting the permission. It was a timing issue that we didn’t have anything in place to do a buyback.
ALEC HOGG: Erik, I have a problem. When a company buys back shares in a market, why would it do so from its own Directors who would have known in it wanted to buy back shares in the market? The whole thing just doesn’t sit well in corporate governance terms.
ERIK VENTER: Well, the big issue that we’ve had is that the volumes trade on the market is so miniscule that, while we’ve had the intention to do a buyback, we just didn’t see that it would come into effect any time soon. We were hoping that somewhere down the line maybe one of the larger institutional shareholders would say ‘listen, we’re interested in selling’, and then we’d put the process in place and do the buyback. When we suddenly saw this block of 23 million shares on the market we said, ‘well, here’s the opportunity. There are 23 million shares on the market. We’ve tried to do a buyback for a long time, but no one has been interested in selling, so we’d better take advantage of this and do the deal’. The shares sat on the market for nearly two hours before we got the process in place to do the buyback. Anyone who wanted to go in there and purchase the shares could have done so.
ALEC HOGG: Why not just talk to the Directors? Once they asked you if they could get permission to sell say, ‘sure guys. Hang on. We’ll make sure that this happens. Do due process, inform the market’, and let everybody in the market know that you have two Directors selling. Then you don’t screw it up by saying these two men bought rather than sold. The whole thing is a mess.
ERIK VENTER: Yes, the issue is that when the opportunities arise, one really has to grab them. We don’t see the volumes coming through on Comair that would provide these opportunities regularly, so when the opportunities do arise we have to chase after them. Obviously, it has to be done within the JSE regulations, etcetera, so we’re comfortable that the process followed was 100 percent in line with the JSE regulations. We even got legal advice on it very quickly, to make sure that we weren’t breaking any rules and our sponsors were happy with it. Yes, there was an error that was made in terms of the announcement that was completed on a purchase/sale template, but the process is 100 percent within JSE regulations. It was open trade on the market. You could see from the timing that we didn’t have our ducks in a row to take advantage of the buyback immediately. Yes, it did take a little while for us to get the process in place to do the buyback, but we don’t see these opportunities coming around very often in terms of that kind of volume on the market for Comair. We could have turned around and said ‘let’s put it aside and try to do it sometime in the future and hope to find those volumes again’, but for the last three/four years now, we haven’t seen big movement in shareholding in the company. We have a very static/stable shareholder base, so it’s not as if we could simply re-implement a buyback in a few months’ time and hope to get another reasonable volume again.
GUGULETHU MFUPHI: Just on the directorships of both Mr Ron Ntuli and Mr Atul Gupta: will they still be directors at the company?
ERIK VENTER: Well, that’s a separate matter altogether. It’s not directly linked to the shareholding so we’ll have to see what happens going forward on the directorships.
GUGULETHU MFUPHI: And corrective actions against maybe the JSE or RMB: will any of that be taken given the fact that they published incorrect information?
ERIK VENTER: No look, we apologised to the JSE. We’ve spoken to RMB. The fault in terms of the SENS announcement – strictly speaking – was our fault, not RMB’s fault. We followed up with that. I think that some of the journalists were carried away a bit in terms of sensationalising the whole process. It wasn’t RMB’s fault, we apologised to the JSE, and they accepted it. I think it was just a matter of trying to get too much done in too short time. As I said, we weren’t anticipating that we would this many shares coming up for sale so quickly.
@alechogg love how he says I sensationalised it when he got it wrong by blaming RMB for the error. What he should say is he got it wrong
— Max Gebhardt (@maxgeb) November 6, 2013
ALEC HOGG: You’re being very hard on my colleague – whomever he might be – the journalist who did that, because many people follow Director Dealings and if you see big purchases of shares there are probably a few people feeling very sore this morning that they’ve bought shares on the strength of coat tailing on Atul Gupta and Ron Ntuli. The question that remains is that a year ago your share price was about a third of where it is today.
ERIK VENTER: Yes.
ALEC HOGG: Why didn’t you go in and try and buy shares at that stage? Why wait until the price has gone from one to three rand?
ERIK VENTER: I think the problem is always that you really need to get the rest of the board (of directors) on board and at the time there was a general perception that we were in an incredibly difficult position. The oil price was rising rapidly. The airfares were not rising. We did have many plans in place to turn things around, but I think there was less assurance within the board that these plans were all going to work. They have worked out. We managed to turn things around. We have a very conservative board. At the time they wanted to see proof that things would turn around. Maybe if they’d had greater faith that all these plans would have worked, we would have gone ahead and done the buyback at the time. Again – even at that point in time – the share of volumes traded was so miniscule we could have put a buyback in the market.
ALEC HOGG: You have Brian Joffe as a big shareholder. He wants to accumulate stock. Don’t you feel that you should have at least given him the option – maybe buying it rather than the company itself and using precious resources?
ERIK VENTER: Look, it was on the market – like I said – for almost two hours, so he has brokers involved etcetera. If he wanted to purchase that stock, he could have done so.
@alechogg thought your interview said it all. Seems like they got themselves into a real mess. Which is sad since they're a great company
— Max Gebhardt (@maxgeb) November 6, 2013
GUGULETHU MFUPHI: No doubt, some lessons learned from this, Erik?
ERIK VENTER: It’s never a dull moment.
ALEC HOGG: That’s for sure. We live in a mining town, don’t we? Strange things happen.
ERIK VENTER: Strange things happen, but as I said we’re happy to say that in terms of the process followed, it has all been signed off both by the lawyers and by the JSE apart from the little glitch in one word in the SENS announcement.
ALEC HOGG: Well, it was a very important word, but the point here is that Erik is very positive, the Board is very positive, they pay top dollar to buy back shares in their company, Mr Gupta has more money in his back pocket, and I guess other shareholders in Comair should be happy because the company thinks the shares are value at this price.
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