A heroic rescue effort?
The group remains in a precarious position, but the recent lock-up agreement offers a glimmer of hope
The Steinhoff International Holdings lock-up agreement (LUA), which was released to an unsuspecting public last week, is not for the faint-hearted.
It continues the Steinhoff tradition of remarkable complexity overwhelming all but the most determined of analysts.
“In the old days [before December 6 2017] trying to understand Steinhoff’s unwieldy structure was a full-time challenge. Now, trying to understand its restructure is almost as challenging,” says one weary analyst.
At least, however, the 177-page document does help to explain why Steinhoff notched up R5.4m a day in legal and audit fees between December 2017 and end-march.
In between the dense legalese two things are made very clear.
First, the group is in an incredibly precarious position, and Louis du Preez is pretty much running the restructuring show. Most investors were all too aware of the precarious situation, and over the past few months some may have guessed at Du Preez’s dominant role in looking for a solution.
Du Preez, who was a corporate lawyer when he first emerged as a supervisory member of the Steinhoff board in May 2017, is Steinhoff’s go-to “obligor”. The term, which conjures up images of something out of an Arnold Schwarzenegger movie, pops up regularly throughout the LUA. In the Steinhoff context, the term “obligor”, which is relatively new to SA, refers to a bond issuer who is contractually bound to make all principal repayments and interest payments on outstanding debt. We know Du Preez is the main man, because he has signed off as obligor on behalf of nine of the 16 Steinhoff companies involved in the LUA.
If they can pull it off, Du Preez and chair Heather Sonn will be corporate heroes. But even if they don’t pull it off they will deserve kudos for their heroic efforts.
The LUA, which is due to become effective on July 20, will give Steinhoff three years’ breathing space, with creditors agreeing to hold off debt claims until December 2021.
Devin Shutte, head of investments at Robert Group, says it’s likely that in drawing up the
LUA, Steinhoff consulted many of the bondholders and so had an indication of what they would accept. “The situation is not ideal for anyone, but if the LUA is not successful, then everyone loses,” says Shutte.
It must also help that the bonds have recovered from the lows they fell to in December. This means that many of the “vulture funds” that