Steinhoff falls deeper into junk

Moody’s downgrades scandal-ridden retail giant further on default fears

RATINGS agency Moody’s downgraded Steinhoff’s debt deeper into junk territory yesterday and warned further downgrades could follow due to mounting cash-flow problems at the South African retail group.

The company, majorityowned by tycoon Christo Wiese, is fighting for survival following its disclosure of accounting irregularities that has wiped more than $12-billion (about R150-billion) off its market value.

The owner of European and US brands such as Mattress Firm, Conforama and Poundland told investors this month it was losing credit lines from lenders over the scandal that has seen veteran chief executive Markus Jooste quit and the company come under scrutiny from local and overseas regulators.

Moody’s, which had already downgraded Steinhoff’s credit rating earlier this month to B1, or speculative with a high credit risk, said in a statement the new rating reflected a substantial risk of default.

The agency cut its rating for Steinhoff International Holdings to Caa1 (poor quality and a very high risk), seven notches into junk territory.

“Steinhoff’s CFR [Corporate Family Ratings] and Moody’s review of its CFR for further downgrade reflect the increasing pressure on the company’s liquidity profile,” Moody’s said.

“The situation has been compounded by its operating companies placing an additional liquidity burden on Steinhoff’s centralised treasury function to fund their working capital needs.”

Steinhoff has $2-billion (about R24.7-billion) of term loans maturing between next year and 2020, and the interest rate payable on the loans is expected to soar to around 250 to 280 basis points above the benchmark lending rate of European banks following the downgrades.

Steinhoff has been on a shopping spree since 2011, when it took over French furniture retailer Conforama.

Last year’s string of acquisitions included Mattress Firm and Poundland, thrusting it firmly onto investors’ radar screens.

The company has yet to explain in full what the accounting irregularities entail, but has said it is considering raising around $2.4-billion (R29.6-billion) from the sale of non-core assets and the proceeds of debt repayments from Steinhoff Africa Retail.

Sasfin Securities deputy chairman David Shapiro told the eNCA broadcaster that Steinhoff remained mired in uncertainty following the downgrade.

“This is big. We’ve had other corporate scandals but this is big. They’re not quite sure of the magnitude of these irregularities,” he said.

“So you sit back and say ‘hold on a second, what happened around those board tables’?” – Reuters-AFP