Steinhoff impact

Concerns about financial irregularities at Steinhoff International have had a material impact on JSE investors. It’s not only Steinhoff’s share price that has suffered, but those of a number of related companies too.

The most obvious is its subsidiary Steinhoff Africa Retail (Star). Investors have sold the share down as it appears that Star has guaranteed at least a portion of Steinhoff’s debt.

The extent of these guarantees is unclear.

The impact has also spread to Shoprite, of which Steinhoff chairperson Christo Wiese owns about 18%. Days before Markus Jooste resigned as Steinhoff CEO, Star announced it had exercised call options to acquire a 23.1% economic stake and 50.6% voting control of Shoprite. The deal remains subject to regulatory approval.

The Wiese connection also put pressure on Brait, Stellar Capital, Tradehold and Invicta Holdings. He is closely associated with all of these companies.

KAP Industrial and PSG Group have also been hit. Steinhoff is a major shareholder in both and if it needs liquidity, it is likely to dispose of some, or all, of these interests. Some investors have, therefore, decided to sell their holdings in anticipation that they will be able to get in at a lower price in the future.

The banks have also come under pressure due to concerns over their exposure to Steinhoff through loans, corporate debt and derivatives. Investec has been the primary loser as it had a range of exposures to Steinhoff and Steinhoff Africa.

While it’s impossible to say that all of the selling in every one of these stocks has been only due to what is happening at Steinhoff, it’s fair to assume it is the major catalyst. Steinhoff International now has a market cap significantly lower than Shoprite’s and smaller even than Star’s. Compared with other retailers on the market, it’s now a smaller company than Mr Price or Woolworths. Just days ago, it was five times larger than either.