Huge Group feels aggrieved by the chastising it received from the Johannesburg Stock Exchange (JSE) over its buy back of derivate instruments that its executive chairman Anton Potgieter and CFO James Herbst placed last year.
A Stock Exchange News Service announcement, placed late yesterday, says the exchange has insisted Huge Group ask for shareholder approval for the repurchase of single stock futures (SSFs) and contracts for difference (CFDs), and shares the two directors had placed with Watermark Securities.
SSFs are futures contracts with the underlying assets being one particular stock. When purchased, no transmission of share rights occurs and they are traded on margin and so offer leverage. CFDs are contracts where the seller undertakes to pay the buyer the difference between the current value of an asset and its value at contract time.
The JSE's reasoning is that these repurchases constituted a related party transaction and in contravention of its rules.
However, Potgieter says he and Herbst took out the derivatives last year in order to finance corporate purchases that the Huge Group had been planning shortly after its listing and that the money was still in the group as a shareholder loan.
“At that time, it was far easier to go to a broker and offer the SSFs and CFD contracts, pay a deposit of 7%, than it was going to the bank. It bordered on reckless lending, but we were not gambling the money and it was put back into the company,” he says.
In total, eight million SSFs, four million CFDs and five million actual shares were involved. Potgieter would not give a total value as the company is in a closed period ahead of its financial results.
“What happened was that Watermark Securities contacted us on the 16 October, during the financial markets meltdown, and asked me and James for a margin call of around R4 million that we refused. We were then disposed of our SSFs and CFDs, and they then came back to the company and offered to sell them back to the company,” he explains.
Potgieter says it made business sense for the company to buy the SSFs, otherwise they could have fallen into the hands of a hostile organisation, or would have been dumped on the open market.
He says that, in September, the JSE contacted the Huge Group about the transaction and the company delivered a legal opinion saying it was not a related party transaction.
“However, the JSE invoked a rule that essentially says that even if they are wrong, they are not and forced us to put out the statement,” Potgieter says.
The Huge Group was last seen trading at 119c, with no shares having changed hands so far today.
* Click here to read the Huge Group's letter to staff and stakeholders.
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