At the moment, there is no recourse for ordinary shareholders when a director’s speculative position ends up denting a company's share price
Over the past 16 months, directors of at least three JSE-listed companies — EOH, MTN and Ascendis Health — have had to offload stock in their companies to meet obligations to lenders. In December 2017, two directors at EOH sparked a 35% share price decline in a single day when they had to contend with margin calls.
“A share price collapse has real consequences, especially for a company like EOH that uses their shares for acquisitions,” Brown said. Coast2Coast borrowed against the health-care company’s shares to underwrite Ascendis’s R750m rights offer in 2017, when it bought shares at R20 apiece. That move has come back to haunt Coast2Coast, Ascendis, and the group’s investors.
The JSE’s only requirement is that when directors sell shares that were pledged as security for loans, the company must disclose these transactions. But in Ascendis’s case, investors are now in the dark because Coast2Coast is no longer represented on the board — meaning its share sales will slip under the radar.
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