Star fum­bles lines

What to make of Star’s R45m listing bill in the con­text of its R5m fine?

Financial Mail - - BOARDROOM TAILS - E-mail: [email protected] BY ANN CROTTY

It seems you don’t get much for R45m th­ese days, at least not in the world of in­vest­ment bank­ing. That was what Stein­hoff Africa Re­tail (Star) spent on its listing ex­penses in Septem­ber last year. In­clude pri­vate place­ment costs and the fig­ure bumps up to R226m.

In hind­sight it could be ar­gued the money was well spent; it cre­ated a chink of light through which Star was able to bolt when things went pear­shaped af­ter Stein­hoff’s fate­ful “ir­reg­u­lar ac­count­ing” an­nounce­ment in De­cem­ber last year.

It meant that in a few short months Star was able to go from trea­sured mem­ber of the se­ri­ously com­pro­mised Stein­hoff fam­ily to lucky or­phan. With­out the 23% mi­nor­ity share­hold­ing (sub­se­quently bumped up to 29%) the night­mare en­dured for the past 12 months by the ex­ec­u­tives of the re­named Pep­kor would have been much darker.

So, in the con­text of pro­vid­ing an es­cape route from Stein­hoff, the listing and all the ex­penses as­so­ci­ated with it ap­pear rea­son­able. But what should we make of the R45m in the con­text of the JSE fin­ing Star R5m for “nondis­clo­sure” last week?

While the Star prelist­ing state­ment was not the worst prelist­ing state­ment in the past 18 months, it did have a num­ber of se­ri­ous flaws, the sort you don’t as­so­ciate with top-of-the-range ad­vis­ers, charg­ing top-of-the-range fees. Per­haps who­ever drew up the doc­u­ment thought there’d never be any prob­lems with Stein­hoff and reck­oned there­fore there was no need to dis­close the un­con­di­tional and ir­rev­o­ca­ble guar­an­tees pro­vided for R15bn of Stein­hoff bonds; and for the same rea­son no need to dis­close the R500m guar­an­tee pro­vided to the man­age­ment in­cen­tive scheme.

But the fact is who­ever drew up the doc­u­ment wasn’t en­ti­tled to that sort of dis­cre­tion. The dis­clo­sure was re­quired un­der any cir­cum­stance.

And then there were the ac­counts, which for some rea­son were not pre­pared in ac­cor­dance with In­ter­na­tional fi­nan­cial re­port­ing stan­dards. Th­ese trans­gres­sions are not mi­nor box-tick­ing is­sues; they ex­pose the com­pany and the share­hold­ers to sig­nif­i­cant li­a­bil­i­ties. Pep­kor CEO Leon Lourens, who’s hav­ing a par­tic­u­larly tough year, says it wasn’t just Star man­age­ment that was in­volved in draw­ing up the doc­u­ment; there was over­sight by a few par­ties. Un­sur­pris­ingly, it was im­pos­si­ble to find any ad­viser will­ing to take re­spon­si­bil­ity.

PSG, Lin­klaters and Deloitte are among the names proudly dis­played on page 98 of the doc­u­ment. Lin­klaters, the most ex­pen­sive ad­viser, wasn’t even pre­pared to talk about it. PSG and Deloitte claim they re­lied on in­for­ma­tion and as­sur­ances pro­vided by man­age­ment and the board. Deloitte says it also re­lied on Pep­kor’s au­di­tor (PWC) for as­sur­ances. PSG says a spon­sor’s role is to as­sist the com­pany in­ter­pret and ap­ply the JSE reg­u­la­tions and that it would be un­re­al­is­tic to ex­pect the spon­sor to au­dit ev­ery­thing pro­vided by the com­pany, its au­di­tors and ad­vis­ers.

If this is in­deed the case then the hefty and ex­pen­sive prelist­ing doc­u­ments are of lit­tle value and should not be used to pro­vide as­sur­ance or com­fort to in­vestors.

The sorry episode doesn’t en­gen­der much hope that the “guardians of gov­er­nance” re­ferred to in the JSE’S con­sul­ta­tion doc­u­ment will be will­ing or able to play much of a role in the bid to strengthen gov­er­nance and in­vestor trust.

The sorry episode doesn’t en­gen­der much faith in the ‘guardians of gov­er­nance’ re­ferred to by the JSE

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