Stein­hoff gets some room to breathe

Business Day - - FRONT PAGE - Ann Crotty Writer at Large

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.”

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