Steinhoff may look to milk stellar affiliate to pay debt

They are selling businesses at less than what they paid

● With the market capitalisation of Steinhoff International’s local subsidiary, Steinhoff Retail Africa (STAR), now larger, some analysts are speculating that the troubled parent may look at reducing its stake in the company that owns both Pep and Ackermans to pay down its debt.

Charles Allen, a senior retail analyst at London-based Bloomberg Intelligence argues: “The idea is that they ask . . . can we do that in a way that would bring us most money and also how we can do it in a way that will enable us to address debt that is not necessarily in South Africa.”

At the end of the week, Steinhoff’s market capitalisation was R25.67-billion, while its local subsidiary had one of R69.44-billion.

Steinhoff owns a 76.81% stake in STAR. STAR was initially meant last year to buy a 23.3% stake in Shoprite Holdings, but after the accounting scandals at its parent company, this transaction has been stalled.

“We’ve already seen that they [Steinhoff] are selling businesses at less than they paid for them. If you are looking at Steinhoff’s debt overall and whether you think that they will be able to repay something and put it into the company,” Allen said.

If a buyer was interested in STAR, buying a Steinhoff stake was a rather convoluted way of doing it, he said. “You could buy a stake directly into Steinhoff Africa.”

Steinhoff said by e-mail it had largely addressed its near-term liquidity requirements, and a key focus in the coming months would be to consider its strategic options.

“When material decisions are made regarding the group’s strategic options plan, it will be communicated to the market as required,” the company said.

It’s not just industry analysts that have suggested a sale of its STAR shares. In a parlimentary briefing last week, the Public Investment Corporation, a 7.5% shareholder in Steinhoff, said significant value could be unlocked from STAR. The PIC is the asset manager for the Government Employees Pension Fund with a majority stake in Steinhoff.

On Friday, STAR released its three-month trading update showing revenue growth of 15.5% to R18.4-billion. On a comparable basis, revenue growth amounted to 8.5% for the quarter. The most attractive assets, Pep and Ackermans, in aggregate reported 6.3% revenue growth and 1.9% like-for-like sales growth for the quarter.

Charles Allen Senior retail analyst at Bloomberg Intelligence