Steinhoff’s painful lesson

Shareholders in Steinhoff could not let creditors take over the crisis-hit company and benefit from the potential upside in its equity. That is the reason behind their vote last week to reject a debt reorganisation deal that would have meant CEO Louis du Preez’s five-year slog to revive the company is a step closer to paying off.

Broadly, Du Preez had hammered out a deal with creditors under which the latter would give Steinhoff a three-year breathing space from debt obligations in exchange for the 80% equity stake, and leave shareholders with 20% in the unlisted company that may be worth something later.

It is hard to see the wisdom in the vote. If anything, it has hastened Steinhoff’s reckoning with creditors, hedge funds who scooped up the company’s €10bn debt on the cheap in 2017 when risk-averse lenders fled.

Shareholders say that Du Preez should have done better in the negotiations with creditors. Steinhoff, they argue, has enough assets to leave something substantial on the table for equity investors, not the crumbs he agreed to.

True, Steinhoff counts assets such as stakes in Pepkor but they are not valuable enough to fix the company’s lopsided capital structure. It would remain insolvent.

Steinhoff’s new plan to avert an asset fire sale is similar to the one rejected by shareholders last week except there’s nothing on the table for them. For creditors, a huge payday awaits but for shareholders there’s nothing but painfully won wisdom that a company built on a hodgepodge of assets requires an extremely long barge pole.