- Netcare’s CEO sold R200 million of his own shares in the company.
- The company says he was “obliged” to sell the shares to settle finance and other costs.
- Fairtree portfolio manager Jean Pierre Verster says it is common for executives to put up their shares as security in exchange for bank loans.
- Netcare’s share price has halved over the past four years.
This week, Netcare CEO Richard Friedland sold an eyewatering R200 million of his shares in the hospital group.
In an announcement about the transaction, the company was at pains to confirm that Friedland remained “absolutely committed” to Netcare, and will stay on as CEO until at least the end of 2022.
When a CEO starts dumping shares, it could be a sign of an impending exit – as was the case with Grand Parade Investments, where its executive chair and founder Hassen Adams sold R60 million in shares before resigning from his position this week.
Netcare is facing some troubling challenges, but Friedland’s large sale is “sad rather than worrying,” says Jean Pierre Verster, portfolio manager at Fairtree.
It is common among South African executives that the shares they hold in the companies they manage, are their biggest assets, says Verster.
When they need cash, and don’t want to sell the shares, they often put up the shares as security in exchange for a bank loan.
If the share price starts to fall, the bank starts circling – as the collateral is not worth as much as before.
“Where a share price suffers a sharp decline, there is the risk that the executive will be forced to sell the shares,” says Verster, noting that Netcare’s share price has halved over the past four years.
In its announcement, Netcare said that due to the current value of the share, Friedland was “obliged” to sell the shares to settle finance and other costs.
Friedland has been CEO since 2005, and oversaw the company’s misadventure in the UK, which finally came to an end last year after it lost billions in the British private hospital sector.
In the past six months, Netcare has reported revenue growth of 5.6% to R10.5 billion, while group profit after taxation fell by 7.9% to R1.12 billion.
It is struggling as the number of medical scheme members in South Africa remains stagnant. In addition, it has been hit by the growing trend that medical schemes force their members to use specific hospitals.
Discovery, the biggest open medical scheme in South Africa, has such a hospital network – but while Netcare hospitals are included, it is far outnumbered by competitors Life and Mediclinic. Netcare’s hospital occupancy dipped to 64.5% from 65.3% in 2018.