9 December 2017
Steinhoff International is a South African international retail holding company that is dual listed in Germany and South Africa. It deals with mainly in furniture and household goods. It has operations in Europe, Africa, Asia, the United States, Australia and New Zealand. The company has some 130,000 employees around the world.
The company admitted to “accounting irregularities” occurred in 2015. This admission caused it to lose over R150bn ($11bn) in its value over the last three days. PriceWaterhouseCoopers has now started investigations into accounting irregularities at Steinhoff. South African, German and US authorities are investigating the irregularities. Deloitte signed off the accounts for so many years. This week they suddenly refused to sign.
The GEPF, Africa’s largest pension fund, has a 51% stake in Lancaster 101, which bought 60 million shares in Steinhoff at R75.98 a share – valued at roughly R4.6bn – in October last year.
The company’s biggest shareholder is billionaire Chairman Christo Wiese, has stepped in to take temporary charge of the company. He has not made any comments so far.
Steinhoff CEO Markus Jooste has resigned. Moody’s Investors Service slashed the credit rating by four notches to junk late on Thursday. The company has lots of good businesses that will fetch decent prices. This would mean an inevitable breakup of the company. Local and foreign banks that financed the company will also be affected. Local banks include Standard Bank Group Ltd., Investec Ltd. and a unit of FirstRand Ltd. Foreign banks that had dealings with the company are: Citigroup Inc., Bank of America Corp., HSBC Holdings Plc and BNP Paribas SA.
Banks also have exposure to Steinhoff through loans provided to Chairman Christo Wiese’s investment vehicles. Last year, Christo Wiese, the largest shareholder of the company,
pledged 628 million of Steinhoff’s shares in collateral to borrow money from Citigroup, HSBC, Goldman Sachs Group Inc. and Nomura Holdings Inc. That was to participate in the acquisition of Mattress Firm and Poundland, according to a company statement.
Steinhoff, said on Thursday it was considering selling assets worth at least 1 billion euros. It also said one of its African subsidiaries would refinance long-term liabilities amounting to another 1 billion euros. Steinhoff is also investigating the possibility of recovering assets valued around 6 billion euros. These measures may help recoup some of the money owing to banks and investors. Total exposure to lenders and other creditors was almost 18 billion euros ($21 billion) as of the end of March.
This scandal comes in the wake of Gupta scandal, in which three Indian brothers had improper links with President Jacob Zuma. This led to the downfall of public relations company Bell Pottinger and forced McKinsey, the consultancy, to launch an inquiry into its own activities. Germany’s SAP suspended 4 employees who paid R100m in bribe to a Gupta related company to secure government work.