Steinhoff gets some room to breathe
After nine months of legal challenges and five postponements, embattled retailer Steinhoff International has finally clinched an agreement with creditors that will provide it with space to stabilise its business and restructure its debt-laden balance sheet.
The so-called company voluntary arrangement (CVA) has been backed by owners of €8.8bn (R151bn) of the €10.8bn debt in the Steinhoff holding company who’ve agreed to suspend their claims for repayment or interest until December 2021.
In a Sens statement released on Wednesday, CEO Louis du Preez described the agreement as a “major milestone in our recovery journey, bringing with it the stability that will allow us to turn the page and concentrate fully on maximising value from our operating companies”.
Following this week’s first results presentation since it uncovered “accounting irregu
larities” in December 2017, Du Preez told Business Day that the group’s creditors initially voted in favour of the CVA in December 2018.
“It was due to become effective in January 2019 but was challenged by [Andreas] Seifert, then there were other issues,” he said, referring to the extremely complicated legal process.
A company owned by Seifert was a former partner of Steinhoff. In his only public appearance since the December 2017 announcement of accounting irregularities, which led to the destruction of 90% of Steinhoff’s share value, former CEO Markus Jooste told a parliamentary hearing in 2018 that Seifert was behind the collapse.
The CVA, implemented in terms of UK law, is used by financially distressed businesses to reach agreement with creditors. It enables an insolvent company to ring-fence historical debt and continue trading.
Du Preez told Business Day that the debt tied up in the CVA becomes payable in full in December 2021.
In addition to the €8.8bn debt, the parties to the CVA will receive an effective 10% average interest payment, which will be rolled up and will also become payable in December 2021.
If Steinhoff is unable to make the payment, the creditors can enforce their security over the group’s European assets.
Jean Pierre Verster, CEO of Protea Capital Management, said the critical issue for creditors has always been that while the debt is Europe-based, the most attractive asset, Pepkor Holdings, is in SA. Verster said that given the controversial circumstances around the collapse of Steinhoff it was very unlikely the Reserve Bank would allow the group to use the local assets to offset European debt.
“They have delayed the day of reckoning but it is still coming,” said Verster, adding there was nothing in this week’s results presentation to make him change his mind about the hopelessness of the situation.
As for the possibility of swapping debt for equity, which was raised by analysts attending Tuesday’s presentation, Verster said there could be scope to take equity in Steinhoff’s operating companies. “But it’s difficult to see creditors taking any equity unless the litigation is sorted out,” said Verster.
Steinhoff is facing several multibillion-euro claims, including a €5bn claim from former chair Christo Wiese and a R740m claim from Jaap du Toit’s Le Toit Trust.
It has two categories of claimants. One is for individuals who were induced to exchange assets — Wiese’s Pepkor shares and Le Toit’s PSG shares — for artificially inflated Steinhoff shares. A second is for shareholder action groups such as Amsterdam-based shareholder activist VEB.
Du Preez said sorting out the litigation is critical. “No-one is going to talk to you about a new capital structure when litigation is hovering over you.”