Noose tightens around Steinhoff
Banks exert control and multiple probes face shamed retailer
● The noose seems to be tightening around Christo Wiese’s scandal-ridden Steinhoff International, with some of the world’s leading banks now pulling the strings at the furniture retailer, leading to his resignation as chairman of the group.
Last week Steinhoff was implicated in accounting irregularities that led to the resignation of its long-serving CEO, Markus Jooste.
Apart from the pressure from its lenders, Finance Minister Malusi Gigaba has assembled a regulatory task team from the Financial Services Board (FSB), Independent Regulatory Board of Auditors (IRBA) and the South African Revenue Service to look into the reported fraud and corruption that has seen the stock of one of Africa’s biggest companies fall about 84% over the past two weeks.
“What’s likely is that the banks are calling the shots. To an increasing extent they have big exposure from a debt perspective and so they are going to want to run the show more so than what was the case before this happened,” Sean Ashton, chief investment officer at Anchor Capital, said.
Banking houses Citigroup, Goldman Sachs, HSBC and Nomura have an exposure of about ¤1.6-billion (about R25-billion) from a loan which was secured against Steinhoff shares.
Bank of America, CitiGroup and BNP Paribas declined to comment.
“This has achieved two things; which is greater control and perhaps the banks motivated an independent board,” Ashton said.
On Friday Wiese was removed as chairman and his son, Jacob, as director. Wiese also involuntarily sold about 98.5 million of his Steinhoff shares. He was replaced by an interim chair, Heather Sonn.
As part of Steinhoff plans to increase liquidity in light of the crisis, Steinhoff also reduced its stake in PSG, selling 20.6 million shares at R230 a share, raising R4.7-billion.
The developments over the past few weeks have shaken up the South African business class, which until then had seen Wiese’s five-decade long run as entrepreneur as one of the country’s success stories. Now his lofty ambition to build Africa’s own IKEA lies in tatters, with banks controlling his empire. But for now Wiese remains mum. Speaking to Business Times this week all he would say was that it was very unlikely that any further details would be announced before next week.
“We are hoping that we are on track but until then it’s still no further comment,” Wiese said, adding that while this was all a delicate situation, especially with the banks, they “would not want to have any sort of disturbance at all”.
But there seemed have been warning signs that the empire was faltering.
’These guys might be crooks’
In an interview with US-based television station CNBC this week Stan Druckenmiller, billionaire and CEO of Duquesne Family Office, said he had previously had a short selling on Steinhoff after “. . . someone was kind enough to explain to me that these guys might be crooks, there was fraud at best when you look at what’s going on”.
Druckenmiller, who along with George Soros famously shorted the pound, earning a $1-billion profit in 1992, went as far as describing Steinhoff as a “zombie company”.
Whether Wiese himself is implicated in any of the accounting irregularities that cost Jooste his job is uncertain.
“My sense would be that he was blindsighted by this and the only reason is that it is highly unlikely that if he knew that there was imminent trouble that he would have bought shares on margin a mere three weeks ago,” Ashton said.
To many analysts, Wiese’s trust in and friendship with Jooste seems to have been his biggest mistake.
“He should’ve been more circumspect about issues but because he liked Jooste so much he essentially protected him,” Zwelakhe Mnguni, chief investment officer at Benguela Global Fund Managers, said.
While his resignation as chairman was a positive step “. . . we still have issue with the rest of the board members, given the scale of the suspected fraud”, Mnguni said.
“It’s just an indication of the fact that he believed so much more in Jooste than any other person, and the problem is that now it’s been proven that his belief and faith were misplaced. He has done the right thing by resigning.”
Compliance with laws
As part of Gigaba-led intervention, the IRBA is looking at Steinhoff’s accounting procedures and compliance with laws and whether there were any irregularities at the audit firms.
Deloitte, who was the auditor at Steinhoff and refused to sign off of the 2017 financial results, will also be investigated by IRBA.
Bernard Agulhas, CEO of the IRBA, said: “We have issued an initial letter of investigation informing Deloitte that we will be investigating them and the years we’ll be investigating will be 2014, 2015 and 2016. Because
we are dealing with jurisdictional issues we will be investigating the audits of Steinhoff International Pty Ltd.”
The IRBA met last week with the Dutch and German audit regulators and has exchanged information facilitating collaboration between the regulators.
The FSB is investigating similar issues in relation to trading in shares and possible false and misleading reporting.
Nicky Newton-King, CEO of the JSE, said Steinhoff has been extremely collaborative and cooperative. “Every single request for information has been afforded the respect and response at any given hour of the morning.”
He [Wiese] liked Jooste so much he essentially protected him Zwelakhe Mnguni CIO at Benguela Global Fund Managers The banks motivated an independent board Sean Ashton Chief investment officer at Anchor Capital
● Fashion retailer H&M said on Friday that sales had fallen during the past three months as fewer shoppers visited its stores, sending its shares plummeting and underlining its struggle to adapt to a shift of business online.
Shares in the world’s second-largest fashion retailer fell 13% to their lowest level since 2009.
The Swedish group said sales in the SeptemberNovember period were far below its own expectations. It plans to speed up efforts to adjust to changes in the market, including closing more H&M stores and opening fewer new ones, and starting selling the brand through the Chinese online platform Tmall.
“The quarter was weak for the H&M brand’s physical stores, which were negatively affected by a continued challenging market situation with reduced footfall to stores due to the ongoing shift in the industry,” the company said in a statement.
“In addition, there have been imbalances in parts of the H&M brand’s assortment composition,” it added, suggesting problems with its product ranges.
H&M has seen inventories pile up over the past two years. Fourth-quarter sales shrank 4% year on year, or 2% in local currencies, to 50.4-billion Swedish krona (about R80.4-billion).
Main rival Inditex, the owner of Zara, has outperformed H&M and others in recent years, helped by a more flexible supply chain that allows it to adapt quicker to demand.
The Spanish company this week reported slower sales growth in the three months through October but said sales growth had gained pace again in November.
A string of analysts have lowered their ratings on the H&M stock recently amid concerns that H&M will not be able, despite rapid online growth, to keep up with newer and nimbler pure-online players such as Zalando and Asos.
H&M’s full quarterly earnings report is due on January 31. — Reuters