Star fumbles lines

What to make of Star’s R45m listing bill in the context of its R5m fine?

It seems you don’t get much for R45m these days, at least not in the world of investment banking. That was what Steinhoff Africa Retail (Star) spent on its listing expenses in September last year. Include private placement costs and the figure bumps up to R226m.

In hindsight it could be argued the money was well spent; it created a chink of light through which Star was able to bolt when things went pearshaped after Steinhoff’s fateful “irregular accounting” announcement in December last year.

It meant that in a few short months Star was able to go from treasured member of the seriously compromised Steinhoff family to lucky orphan. Without the 23% minority shareholding (subsequently bumped up to 29%) the nightmare endured for the past 12 months by the executives of the renamed Pepkor would have been much darker.

So, in the context of providing an escape route from Steinhoff, the listing and all the expenses associated with it appear reasonable. But what should we make of the R45m in the context of the JSE fining Star R5m for “nondisclosure” last week?

While the Star prelisting statement was not the worst prelisting statement in the past 18 months, it did have a number of serious flaws, the sort you don’t associate with top-of-the-range advisers, charging top-of-the-range fees. Perhaps whoever drew up the document thought there’d never be any problems with Steinhoff and reckoned therefore there was no need to disclose the unconditional and irrevocable guarantees provided for R15bn of Steinhoff bonds; and for the same reason no need to disclose the R500m guarantee provided to the management incentive scheme.

But the fact is whoever drew up the document wasn’t entitled to that sort of discretion. The disclosure was required under any circumstance.

And then there were the accounts, which for some reason were not prepared in accordance with International financial reporting standards. These transgressions are not minor box-ticking issues; they expose the company and the shareholders to significant liabilities. Pepkor CEO Leon Lourens, who’s having a particularly tough year, says it wasn’t just Star management that was involved in drawing up the document; there was oversight by a few parties. Unsurprisingly, it was impossible to find any adviser willing to take responsibility.

PSG, Linklaters and Deloitte are among the names proudly displayed on page 98 of the document. Linklaters, the most expensive adviser, wasn’t even prepared to talk about it. PSG and Deloitte claim they relied on information and assurances provided by management and the board. Deloitte says it also relied on Pepkor’s auditor (PWC) for assurances. PSG says a sponsor’s role is to assist the company interpret and apply the JSE regulations and that it would be unrealistic to expect the sponsor to audit everything provided by the company, its auditors and advisers.

If this is indeed the case then the hefty and expensive prelisting documents are of little value and should not be used to provide assurance or comfort to investors.

The sorry episode doesn’t engender much hope that the “guardians of governance” referred to in the JSE’S consultation document will be willing or able to play much of a role in the bid to strengthen governance and investor trust.

The sorry episode doesn’t engender much faith in the ‘guardians of governance’ referred to by the JSE