/ 26 January 2018

Focus shifts to Steinhoff’s ex-chair Christo Wiese

The Steinhoff market value has dropped about 88% since allegations of accounting fraud surfaced in early December last year.
The Steinhoff market value has dropped about 88% since allegations of accounting fraud surfaced in early December last year.

Some of the biggest names in global banking have incurred billions in losses because of bad loans to just one client — and increasingly it appears that client is Upington-born billionaire Christo Wiese.

Recent reporting by United States banks reveal that four of the biggest banks in the world incurred a collective $1-billion, or R12-billion, in losses because of write-downs related to a “single-client event”.

Although it seemed at first this would be for Steinhoff’s account, this is not the case. Instead it appears the loans were made to Wiese, which would suggest the tycoon’s personal wealth has taken a far bigger hit than has been quantified so far.

Goldman Sachs and JP Morgan lost $130-million and $273-million respectively, and said the losses were related to “margin loans” that were linked to Steinhoff. Citigroup and Bank of America reported losses of $370-million and $292-million but declined to name the client involved, although it is understood to be Steinhoff-related.

But Steinhoff International confirmed that “the loans in question were given directly to shareholders and not to Steinhoff”.

The Steinhoff market value has dropped about 88% since allegations of accounting fraud surfaced in early December last year.

A report by The Wall Street Journal in December claimed the aforementioned banks and others, such as HSBC and BNP Paribas, are on the hook for share-backed margin loans extended to Wiese. These and other European banks will begin to report on Friday, February  2. Japan’s Nomura is also reported to have financed Wiese who, until recently, was Africa’s sixth-richest man.

A margin loan is when money is borrowed for investments, and shares are used as security.

In Wiese’s case, this would imply that he put his Steinhoff shares up as collateral and to finance the purchase of more Steinhoff shares.

Neither the banks nor Wiese would say anything more but, market observers claim that the collateral for these loans would probably have been Wiese’s Frankfurt-listed Steinhoff shares. According to one analyst, who asked not to be identified, it would have been problematic for a loan to be backed by Wiese’s South African-listed Steinhoff shares, or any other local assets for that matter, as they would be subject to complex exchange controls if a foreign bank wanted to collect on them.

Wiese’s South African assets may then be out of the reach of foreign banks and their only recourse is to take ownership of the Frankfurt-listed shares that were put up as collateral, or to sell them.

This could mean Wiese’s net worth is significantly less than the current $1.06-billion estimate by Forbes.

The outstanding debt would then be deemed uncollectable and written-down.

A snapshot of the Steinhoff shareholder register, as of November 24, published by Moneyweb, shows that the largest shareholding, 26.8%, was held by Clearstream, the clearing house for the Frankfurt Stock Exchange.

Clearstream said it was acting for some of the banks and holding these assets under custody. The analyst said, while some of Wiese’s shares may have been held there, Clearstream is likely to have held shares on behalf of a number of investors.

As shown by the registry snapshot, there was a cumulative 6.6% Steinhoff shareholding held by Wiese-owned Upington Investment Holdings.

Wiese was known to have had a shareholding of about 22% in the retailer, suggesting the balance must have been in the custody of one or more of the other listed shareholders.

Neither the JSE nor the Frankfurt Stock Exchange have access to an updated Steinhoff shareholder registry. Steinhoff International keeps this, but the company said it is not at liberty to disclose this information publicly and is only obliged to disclose its public shareholders larger than 3%, which is done when issuing financial statements. The company must produce overdue audited financial statements by next week Wednesday to comply with the listing requirements of the Frankfurt Stock Exchange.

There was a forced sale of 98.5-million of Wiese’s Steinhoff shares on the South African market in December, ostensibly to cover a loan liability, according to 
Business Day. That reportedly brought Wiese’s shareholding to below 30% and as such scuppered his intention to sell his controlling stake of Shoprite into Steinhoff Africa Retail.

Wiese, possibly in need of cash, has also sold billions worth of Shoprite shares. His cashing out of between four million and five million of his shares in Aspen earlier this month may well have been the reason for the panic selling of the shares amid rumours that the pharmaceutical giant was the next target of short-sellers who profited from Steinhoff’s demise.

Wiese’s assistant said it was his policy not to reply to any queries until Steinhoff’s audited results are released.