Steinhoff’s liquidity hangs in the balance
Intercompany loans major hurdle to debt restructuring
STEINHOFF’S web of intercompany loans was brought to light for the first time on Friday, raising questions about the value of its hitherto prized South African assets.
The embattled furniture retailer, which admitted to accounting irregularities in December, must urgently restructure à9.6-billion (R145-billion) in external debt held primarily by its Austrian finance companies – Steinhoff Europe and Steinhoff Finance Holding.
This arises as it faces mounting litigation over possible fraud, including a R59-billion claim from its former chairman, Christo Wiese.
“The liquidity position of the group’s key finance companies is not sustainable beyond the next few months, absent a solution,” Steinhoff said in a presentation to lenders in London. The group undertook to provide an update on the discussion with lenders by June 29 at the latest, when it issues interim earnings.
However, the extent to which it will manage to restructure debt could be hampered by widespread intercompany loans.
These had “muddied the waters”, said an analyst who spoke on condition of anonymity. “We are talking about a few billion euros flowing into and out of these two [Austrian] entities, and to other South African companies,” he said.
These loans made it difficult to separate the entities that had value, previously considered to be the South African businesses, from those that had negative value. Steinhoff Europe had intercompany loans payable to Steinhoff Finance Holding and Steinhoff Africa Holdings totalling about à1-billion (R15-billion).
Steinhoff Europe was in turn owed about à3.7-billion (R55.6-billion) from other companies in the group.
“I thought they could devolve a lot of the indebtedness in the finance companies down to the operating companies. But the intercompany loans complicate that,” said the fund manager. SA’s exchange-control laws, directors’ duties and financing restrictions at operating companies restricted Steinhoff ’s ability to “upstream cash” from its underlying businesses, the company said.
Steinhoff expects the group’s retail operations to post revenue of à9.4billion (R141-million) for the six months to March, a 1% increase on the prior period’s restated figure. Retail operations were expected to be profitable for the period.
But “central costs” relating to restructuring, liquidity, litigation and a forensic investigation into its accounts would drive an after-tax loss on a group basis.
In an update on each of its operating entities, Steinhoff said Austria’s Kika Leiner and Mattress Firm required group funding.
Discount retailers Poundland and Pepco were stable, while Conforama was profitable but could not yet be sold at fair value.
“The underlying businesses have not fallen in a heap. And that’s good news,” said Wayne McCurrie, a fund manager at Ashburton Investments.
Still, a restructuring of Steinhoff ’s debt remained critical to realise the value in these businesses, McCurrie said. Steinhoff was working on a detailed plan that could be “put to creditors shortly”, which would include agreements on asset disposals to fund its ongoing liquidity requirements, the company said.
Steinhoff hoped to push back by three years the dates at which its debt matures and pay no cash interest on this debt, except on loans to its real estate business, Hemisphere.