Silence shrouds Steinhoff saga

After initially dominating the headlines a curious silence has settled over the Steinhoff International saga following the company’s spectacular fall from grace.

The news that it appeared to have cooked the books, which broke in early December, has resulted in pension funds and bondholders losing billions of rands. But the most affected parties, including asset managers and lenders, are waiting for more information before possibly seeking restitution.

The company’s market value has dropped about R200‑billion since the news of possible accounting fraud broke on December 6. On the fixed-income market, about €10‑billion in bonds may technically be worth half that now. But as yet, no one is demanding any action or recompense, or at least not publicly. Only a few small, disgruntled investors are calling for those responsible to be brought to book (see “Small investors bay for blood”).

A well-placed source among Steinhoff’s major shareholders said the company had told investors it could not discuss any substantial issues while it was being investigated by global and local regulators.

“The Steinhoff saga is becoming a classic tale of a lethal cocktail of greed, poor governance and corporate abuse, all done under the watch of poor regulation,” said Iraj Abedian, the chief executive of Pan-African Investment and Research Services. “As I understand the situation, the bankers seem to be scared to shake the house of cards in case they cause the total collapse and they end up having to write off billions and billions.

“At the same time, it is increasingly clear that no one seems to know the true situation, so they are all awaiting a credible report that can register with credibility the true asset-liability status. Until this is made available, it is risky to disturb the delicate balance, especially by the bankers most exposed.”

Abedian said some high-profile businesspeople were nonexecutive directors on the Steinhoff board but “no one seems to have shown any backbone to raise any issues, and move to announce them as delinquent or some kind of punitive action. They cannot wipe out billions and still remain intact,” he said.

When the share price crashed, large investors were quick to reveal how exposed they were to Steinhoff and warned of the potential impact. But when approached for comment this week, most opted to stay mum.

The largest shareholder by far is billionaire tycoon Christo Wiese who, according to Forbes, lost $2.3‑billion, or 60%, of his personal wealth. He has not discussed the matter since stepping down as the chairperson of Steinhoff.

The Public Investment Corpor-ation, the second-largest shareholder, with a 10% stake in Steinhoff, and exposed South African asset managers such as Old Mutual, Alexander Forbes, Allan Gray, Foord and Liberty all could not comment this week on what action they would pursue. Sanlam, which also holds Steinhoff bonds, said it was in a closed period and “so is unable to disclose further information”.

Offshore asset manager UBS Switzerland said the Steinhoff matter in general “is not something we could comment on”. Other shareholders, such Coronation, did not respond to requests for comment.

Bondholders are also not saying much. The European Central Bank (ECB) announced last week that it had disposed of its Steinhoff investment in Europe but would not say anything more. According to the Financial Times, the ECB is said to have held about €100‑million in Steinhoff bonds as part of its quantitative easing programme and has sold this off for just €50‑million.

Adrian Saville, chief executive and founder of Cannon Asset Managers, said the silence stemmed from persistent uncertainty about the exact nature and full extent of the Steinhoff problem. “With African Bank, it was announced with a fair degree of clarity and detail to say: ‘This is the problem; this is how deep we are in it.’

“With Steinhoff, we know there is a problem and there is fair amount of guessing about the nature of the problem … we know they may have to restate their financials, but as to what extent and what are the issues … we remain in the realm of speculation here,” Saville said.

What is known is that Steinhoff has been talking to its bankers to access revolving credit facilities. Lenders would also be hard at work behind the scenes, he said.

“What is going on behind this very silent veil is serious activity to try and figure out who has done what, what the legal recourse is, and what the impact might be.”

Part of the issue might be that Steinhoff itself didn’t quite know the extent of the problem, Saville said. “If they do, they are probably trying to figure out rather frantically how to mitigate this. All suggestions are that it is a big problem with material legal consequences.”

When a company falls, there was a pecking order, he noted. “You have always got seniority in that kind of scenario. At the back of the queue are equity holders [preference shareholders getting priority over ordinary shareholders] and at the front of the queue are people who have lent to the business operations [such as suppliers],” said Saville.

In the middle were those who extended loan capital to the company and the bondholders. For that reason, equity providers take the worst hit, Saville said.

Bankers that had extended credit could go ahead of the bondholder in terms of their debt agreements. It is also common practice for banks to have reset or penalty clauses built into the agreement, which allows them to increase the interest rate on the loan when an instalment is missed or the contract is breached in some other manner. Saville described it as a “poison pill”.

Should a company be unable to pay its debts, the debt could be converted to equity and the lender would become a controlling shareholder. But every case was different, Saville said.

Bondholder registers are not widely available. Generally, though, Steinhoff’s offshore bonds are trading at significant discounts and its South African bonds are trading at a discount of about 20% — an indication that the liquidity problems are far more severe in the European operations than in the South African ones, according to a portfolio manager.

Abedian said the most inexplicable aspect of the matter was the total silence of the regulators.

In Germany, the tax authority said its fiscal code’s tax secrecy provisions prevented it from providing any information about potential investigations of companies or individuals. The Oldenburg attorney general, which is investigating Steinhoff for alleged accounting fraud, could not be reached for comment this week.

In South Africa, the Financial Services Board announced in early December it would investigate whether Steinhoff had made false and misleading reports in terms of section 81 of the Financial Markets Act. This week, it said it could not comment because sharing information on active investigations was prohibited by law.

The JSE is investigating whether Steinhoff breached its listing requirements. The share continues to trade on the exchange because it is still trading on the Frankfurt exchange, where it has its primary listing, and suspending trading would put local shareholders at a disadvantage, the JSE said.

But the company must produce audited financial statements by January 31 to continue trading in Germany.

The Companies and Intellectual Property Commission has also launched an investigation into possible contravention of the Companies Act and regulations, but this week the department of trade and industry was unable to provide an update on its progress.

The Independent Regulatory Board for Auditors said it would launch an investigation into Steinhoff’s auditors, Deloitte. The board only recently referred Deloitte for a disciplinary hearing about the work it did for African Bank, which was placed under curatorship in August 2014.

Small investors bay for blood

One investor lost R250 000, their life savings, and out of frustration started an anti-Markus Jooste and anti-Steinhoff Facebook group in the hope of generating some action by invoking the name of Steinhoff’s former chief executive.

Responding to questions over Messenger, the investor said they had not sold off their shares, which traded at R7 this week, compared with R65 in early December.

“No point in selling it and taking a 90% hit. It’s only worth R25k now. R250k turned into R25k in three days due to this man’s fraud and the directors’ negligence,” the investor said. “They need to be brought to book and have assets sold (personal) so we can get refunded some of our monies.”

This would certainly include Christo Wiese, who recently stepped down as chairperson, they said, as “this all happened under his watch”.

On Twitter, followers surveyed by the Mail & Guardian made a similar call for action.

@Mashobane61 tweeted: “The members of the board and exco [executive committee] must be held personally liable. They’ve received payments and bonuses while all of this was happening in their watch!” @ReedJules said: “Lost a R150 000. Big bucks for a small investor. The whole board should be brought to explain why they covered for Jooste and Wiese. Then sentenced.” @sakhile_1 said: “My pensions statement shows a drop in interest earned for 2017. They should be arrested for fraud, money laundering and corruption.” @Mthwakazi23 tweeted: “I just need my money back.” — Lisa Steyn

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