Stein­hoff sinks as in­vestors sue for R185bn in losses

Cape Times - - FRONT PAGE - JB Styan

EIGHT months have passed since the overnight crash of one of the JSE’s big­gest dar­lings, the multi­na­tional con­glom­er­ate called Stein­hoff. In the week of De­cem­ber 4 to 8, 2017, the group saw its decades-long au­di­tors Deloitte refuse to sign off its an­nual re­port. Chief ex­ec­u­tive Markus Jooste re­signed and a con­tro­ver­sial re­port by an Amer­i­can short seller called Viceroy was pub­lished.

Th­ese fac­tors led to the Stein­hoff share price fall­ing from more than R50 per share to R6 per share. It sub­se­quently fell to be­low R2 per share as fur­ther bad news came out over the months that fol­lowed.

This is a com­pany which listed on the JSE in 1998 at R4 a share and once bragged with a share price of a lit­tle more than R96. The re­sul­tant value de­struc­tion is un­par­al­leled in South Africa. In to­tal it has been es­ti­mated that around R300 bil­lion in value has been de­stroyed. This in­cludes the drop in value that com­pa­nies as­so­ci­ated with Stein­hoff and its di­rec­tors ex­pe­ri­enced.

The on­go­ing in­ves­ti­ga­tion into what went wrong and who is re­spon­si­ble con­tin­ues. To date no one has been ar­rested, de­spite pen­sion funds in South Africa hav­ing seen bil­lions in value de­struc­tion.

This in­cludes the gov­ern­ment em­ploy­ees pen­sion fund that lost an es­ti­mated R20bn. Those are nurses, teach­ers and po­lice­men and women.

The Hawks have opened a case, but in re­al­ity are prob­a­bly wait­ing for the PwC foren­sic au­dit to be com­pleted be­fore they will take ac­tion.

Did you know that there is not a sin­gle per­ma­nent au­di­tor or char­tered ac­coun­tant work­ing for the Hawks’ spe­cialised com­mer­cial crimes unit to­day?

On the op­ti­mistic front, the group that has been likened to a body rid­dled with bul­let holes, is still stand­ing. Just. It has 12 000 shops in 33 coun­tries around the world and there are 130 000 peo­ple work­ing for shops linked to the Stein­hoff group.

In South Africa alone there are 50 000 peo­ple work­ing in a Stein­hoff com­pany some­where, and th­ese jobs re­main on the line too.

Two bits of good news Th­ese in­clude shops like Pep, Brad­lows, In­cred­i­ble Con­nec­tion and HiFi Cor­po­ra­tion among oth­ers. The fact that the stores are still trad­ing and the Stein­hoff share has not yet been sus­pended by the Frank­furt Stock Ex­change must be the two big­gest bits of good news for the group.

On the flip side there are many neg­a­tives. Th­ese in­clude a mas­sive cash flow prob­lem and a seem­ingly in­sur­mount­able moun­tain of debt. In May the debt was

10.4bn (about R166bn) while the group’s mar­ket value was only 584 mil­lion (about R9.35bn).

An­other bit of bad news are the con­cerns about the out­comes of the Stein­hoff in­ves­ti­ga­tion. At the mo­ment the an­nual re­ports for a num­ber of years have been re­called and the opin­ions ex­pressed can­celled. Th­ese re­ports are be­ing re­stated and may carry lots of bad news for share­hold­ers when they fi­nally come out. The group’s state­ments for 2015, 2016 and 2017 are all be­ing re­done.

This process is paralysing, be­cause banks will not eas­ily lend money to a group whose fi­nan­cial state­ments are un­re­li­able. The group is ne­go­ti­at­ing con­tin­u­ously with cred­i­tors to hold away the credit wolves.

Mean­while the news from Amer­ica is not good, with re­ports in­di­cat­ing that the com­pany called Mat­tress Firm that was pur­chased in 2016, was in­deed a big dud.

Stein­hoff un­der Markus Jooste bought Mat­tress Firm for $64 per share (R898), at a time when the share price was only $29. This was the first real cat­alytic mo­ment that led to the melt­down of the Stein­hoff group.

Over­stated for years It has be­come clear that assets and in­come have been mas­sively over­stated for years, and in June the group un­der the chair­per­son­ship of Heather Sonn an­nounced in a state­ment that it has writ­ten off value of assets by 12.4bn (about R198bn). That is an as­tound­ing amount. The hope is that this has been the bulk of the mat­ter and that fur­ther write-offs will be much smaller if any at all.

What to look out for? The most im­me­di­ate thing of in­ter­est is the third par­lia­men­tary hear­ing into the Stein­hoff mat­ter. The first and sec­ond hear­ings were held in Jan­uary and March this year. The third hear­ing is ex­pected to be held in Par­lia­ment on August 29. Ex­pected at the hear­ing is the ex-chief fi­nan­cial of­fi­cer of Stein­hoff, Ben la Grange, who at one time was earn­ing in ex­cess of R50m per year. What did he know? What will he say? This will be the first hear­ing he may at­tend. He was not present at the prior two hear­ings, and it will be in­ter­est­ing to hear what La Grange has to say.

On an al­most daily ba­sis new in­for­ma­tion about Stein­hoff is mak­ing head­lines across the coun­try. The lat­est was the news about a new class ac­tion law­suit be­ing mounted against it and some of the main in­di­vid­u­als. The new law­suit was filed in Jo­han­nes­burg and fol­lows on sim­i­lar le­gal ac­tion taken in the Nether­lands and Ger­many. It will be in­ter­est­ing to see where this law­suit leads if any­where, and how it may af­fect the ef­forts to re­struc­ture the group.

The one thing that is be­com­ing clear about the Stein­hoff mess is that there will be many rep­u­ta­tions ru­ined be­fore the story has played out. Th­ese in­clude in­ter­na­tional au­di­tors, le­gal firms, ad­vi­sory con­sul­tan­cys, bil­lion­aires and a mul­ti­tude of oth­ers. At best none of th­ese world renowned en­ti­ties saw any of this com­ing. At worst, they did. It is also true that the story re­mains a mine­field of con­fu­sion and com­plex­ity. Juris­dic­tion­ally for ex­am­ple, con­sider the fact that Stein­hoff is a Dutch com­pany, not a South African com­pany, and its pri­mary list­ing is in fact in Ger­many, not in Jo­han­nes­burg.

As to Markus Jooste. Well, he is still liv­ing foot­loose and fancy free in the Winelands. Ru­mour has it that he has ap­pointed a top ad­vo­cate al­ready, one who is known for never let­ting his clients say any­thing. Will the real an­swers ever come out? Only time will tell.

In July James-Brent Styan pub­lished an ex­posé of the Stein­hoff melt­down called Stein­hoff: In­side

SA’s Big­gest Cor­po­rate Crash. The book is avail­able from all book­stores across South Africa and re­mains at the top of the best-seller lists.

PHOTO: SUP­PLIED

The Stein­hoff story re­mains a mine­field of con­fu­sion and com­plex­ity, says the author.

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