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JOHANNESBURG - Steinhoff International fell 6.96 percent on the JSE yesterday after its operational hurdles continued with credit insurers in Austria refusing to undersign the company suppliers against losses. 

The shares closed at R1.07 as the company was said to be looking for new insurers for its Austrian subsidiary Kika/ Leiner. Analysts warned that the company would struggle to operate without credit insurance as it would not be able to pay off its debt. Cannon Asset Managers chief executive Dr Adrian Saville said that the revoking of the credit insurance posed new material risks for the troubled company. Saville said it exposed Steinhoff to material stress. 

“In the absence of credit insurance, the vendor (supplier) assumes the full risk of non-payment,” Saville said. 

“And if all credit insurance firms have ceased insuring against Steinhoff in Austria, then Steinhoff suppliers should be able to find other insurers.” Steinhoff has been battling fires since its shares plummeted more than 95 percent in Johannesburg and Frankfurt, following an accounting irregularities scandal that ripped the global retail giant in December. 

The scandal saw the unceremonious resignation of former chief executive Markus Jooste. Last week the company’s South Africa subsidiary, Steinhoff Africa Retail Limited (STAR) said it would change its name back to Pepkor, in a
bid to distance it from its parent company. 

However, STAR has also battled headwinds with claims that potential funders were reluctant to invest in the company. Saville said the cutting of the credit line for Steinhoff goods could spell more disaster for the company. He said this would be an unambiguous negative for Steinhoff. “The cost of insuring against Steinhoff not paying will ramp up, and this is likely to mean suppliers move away from Steinhoff as a buyer; Steinhoff might have to absorb this in margin; or, least likely, Steinhoff will be able to cost in the higher insurance charge and pass this on to their customers.”

Steinhoff has sold stakes in some of the companies it owns in South Africa. The group raised R3.67 billion through an accelerated bookbuild of up to 450 million ordinary shares in KAP Industrial Holdings, reducing its stake to 26 percent, down from 43 percent. It also sold 20.6 million shares in PSG, which represents 9.5 percent of its total share capital and raised approximately R4.7bn. 

In January Kika/Leiner’s managing director Gunnar George said the unit has secured enough money to keep going for up to 24 months. Steinhoff acquired Kika/ Leiner in 2013 for an undisclosed amount, as part of its strategy to bulk up across Europe. Kika/Leiner has a network of around 73 stores, with 23 of those in central and Eastern Europe. Kika/Leiner is a leading Austrian furniture retailer with branches in Austria, Hungary, Czech Republic, Slovakia and Romania. 

Some of Steinhoff ’s biggest acquisitions include Mattress Firm in the US, Poundland in the UK and Fantastic Holdings in Australia and it owns more than 40 retail brands across
the globe. Steinhoff has been struggling to plug the liquidity gap since the troubled retailer admitted to accounting irregularities in December. The group also faces a hefty €10.4 billion (R153.59bn) debt. 

Ron Klipin, a senior analyst at Cratos Wealth, said Steinhoff would be exposed to additional liquidity constraints as a result of the cut of a credit line. This could also affect the sales of assets. “In addition, it may impact on the ability to obtain sufficient inventory as suppliers become more risk averse,” Klipin said. 

- BUSINESS REPORT