Creditors are calling shots at Steinhoff

Sasha Planting

Steinhoff International management is desperately fending off assorted creditors, lawsuits and other predators while trying to restore the retailer to some level of financial sustainability.

Management has simultaneously tried to assure shareholders that all is under control, while announcing it has asked creditors to allow an extension of the lock-up agreement (LUA) from October 20 to November 20.

In July, 90% of creditors agreed to the LUA, which gave management breathing space to restructure company debts.

Steinhoff International’s acting chief executive Danie van de Merwe, says: “Over the last three months, we have made substantial progress … We have continued to receive significant support from creditors under the LUA and we remain in positive discussions with them.”

However, the extension request has to be an indication that negotiations aren’t that easy to finalise.

“The reality is that Steinhoff has outstanding external debt of over €9.8 billion [R161.8 billion],” says Karl Gevers at Benguela Global Fund Managers. “While the LUA will avoid a default situation and buy Steinhoff time [three years], it also comes at a cost, with the LUA possibly adding over €1 billion per year to the debt, as interest and fees are rolled up.”

The bottom line: Steinhoff is forced to work with creditors to avoid liquidation, he says.

Hence the requirement for the LUA. Without this Steinhoff would be under more pressure to liquidate assets at fire-sale prices and refinance at higher levels.

“For creditors, it makes sense to wait to ensure they are fully repaid. On top of this, creditors are being paid quite well to wait [10% per annum].”

Steps taken include the sale of home furnishing subsidiary Kika-Leiner and the Puris Bad and Impuls Küchen furniture manufacturing businesses and assets.

The financial restructuring of Hemisphere International Properties, which holds the European real estate portfolio, was completed in September, resulting in a new, secured, three-year term loan facility of about €775 million.

Greenlit Brands has also been refinanced and all eyes are on Mattress Firm, which filed for voluntary bankruptcy this month.

“Creditors are in charge at Steinhoff and as an equity holder, you are last in line,” says Gevers.