Bank ‘unlikely to back’ Steinhoff rescue plan
• Probe expected before R10bn allowed out of SA • Board uncertain of validity of some assets
Early morning enthusiasm for Steinhoff’s plan to secure €2bn of liquidity to shore up part of a €6bn hole in its accounts quickly faded on Thursday as analysts queried the likelihood of the South African Reserve Bank allowing Steinhoff Africa Retail (Star) to send about R10bn out of the country without a lengthy investigation.
On Thursday morning, Steinhoff informed shareholders that its supervisory board was uncertain of the “validity and recoverability of certain nonSouth African assets of the company, which amount to circa €6bn”.
It is planning to collect €1bn from the sale of noncore assets and is expecting a loan repayment of about R10bn from Star.
Signs of decisive action from Steinhoff initially encouraged investors who believe the longer the crisis remains unresolved the more uncertainty will spread and with it contagion that could affect other shares related to Steinhoff chairman Christo Wiese.
However, analysts quickly began to identify problems with the partial rescue plan. One portfolio manager said that because of question marks over the way Steinhoff was “externalised” some years ago, the Reserve Bank might want to look closely at plans to repay R10bn to the German head office at this stage.
An analyst, who did not want to be named, said the Bank might also want to look closely at the circumstances around the granting of the loan to Star.
Its balance sheet includes goodwill of about R40bn, which is attributable to Steinhoff assets that were sold to Star.
This substantial amount of goodwill raises the possibility that the assets were sold at inflated prices and that the R10bn loan was used to pay these inflated prices.
The Star loan was disclosed, but it was assumed Star would use the proceeds of the listing to repay it.
In October, Steinhoff spent about R5bn of the proceeds it earned from Star’s listing to repurchase 78.4-million shares.
At the time, the Steinhoff share price was about R60. At
the close of JSE trade on Thursday, Steinhoff was trading at R10, having plummeted 43%. Thursday’s fall followed Wednesday’s dramatic 60% slump. The company has lost more than R4bn on the October buyback.
Trading data for the month of November indicate that most of the major fund managers were buying Steinhoff shares in the past few weeks.
Wiese took ownership of a substantial chunk of shares in November and by month-end held 30% of the company.
The scandal-induced collapse in the share price has knocked Wiese off the list of SA’s wealthiest business people. If market speculation is correct, and Wiese used debt to acquire part of his stake, he is unlikely even to feature on the list of the top 100.
One analyst said that Wiese’s reputation as a canny operator had not been destroyed and there was talk that he might be in a position to pick up some of Steinhoff’s attractive operating assets at a fire-sale price within months.
The Public Investment Corporation (PIC), which is the second-largest South African shareholder in Steinhoff with 8.6%, has lost about R20bn on its investment in the past three days. The loss must be seen in the context of the PIC’s R1.8-trillion portfolio. On Thursday, Deon Botha, head of corporate affairs at the PIC, said the PIC applied the highest standards of corporate governance in administering its affairs. “As an institutional investor, the PIC expects the same commitment from all investee companies.”
Botha said allegations of accounting irregularities had exposed the company to possible criminal investigations and these are serious concerns for the PIC. “At this stage, the PIC is awaiting further information from investigations by domestic and international regulators and/or law enforcement agencies, to decide on an appropriate course of action.”
Finance Minister Malusi Gigaba has requested the retirement funds regulator, including the PIC, to provide a report on the extent of exposure for retirements funds.
Meanwhile, SBG Securities released a comparatively upbeat view of the situation, saying that it believed the underlying operating business units were sound and the fundamental underlying sum of the parts value of Steinhoff “far exceeds the current depressed market value — even under a forced break-up scenario”.