Chairman Wiese set to gain from Steinhoff share issue

STEINHOFF will replenish its coffers by issuing new shares to a select number of investors, but most of them will end up with the company’s largest shareholder and chairman, Christo Wiese.

The move comes after the acquisitions of Poundland in the UK and the Mattress Firm in the US. Both deals were closed at premium prices.

The retail giant has said it will issue a total of 332-million new shares, representing 8.5% of its share capital. A little under half of the shares — 162-million — will be subscribed for by Upington Investment Holdings, a firm controlled by a family trust of billionaire investor Wiese.

The Public Investment Corporation (PIC) will facilitate a subscription of 60-million new shares for Lancaster 101; and an additional 110-million new shares will be offered to institutional investors by way of an accelerated book build, the company said. The new issue amounts to just under R30bn.

Electus Fund Managers equity analyst Neil Brown said that as an acquisitive business, it was sensible for Steinhoff to raise equity capital and to reduce its debt levels, as this allowed it to have available capital for further acquisitions. The move would take pressure off Steinhoff’s investment grade, which could have been in trouble as the firm was nearing the upper limits of its debt capacity.

“However, we must add that equity capital is permanent capital and due to Steinhoff’s about 60% increase in equity capital over the past two years, it has made it much harder for Steinhoff to try and maintain its previous return on equity-related ratios,” said Brown.

The preferred option for a capital raise would have been a rights offer in which all shareholders would have been treated equally, he said.

“The only positive about today’s equity-placing mechanism was that it was done at Tuesday’s closing price, but this Steinhoff share price was already 14% lower this month and a 2.5% underwriting fee was also earned by Christo Wiese and the PIC,” he said.

Steinhoff moved its primary listing to Frankfurt in December 2015. It took advantage of cheap debt in Europe through a series of corporate bond issuances. It made bids in early 2016 for Darty and the Home Retail Group, which were both ultimately rejected. Brown said Steinhoff would always be on the prowl for more assets, but should look to buy unlisted companies.

“Ideally, we would like Steinhoff to try to buy some unlisted businesses, such as Roller in Germany, or a mattress manufacturer in the USA, which could supply into Mattress Firm business,” he said.

Steinhoff closed 6.24% higher at R80.72 on the JSE on Wednesday, valuing the company at about R298bn.