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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.