JOHANNESBURG - Embattled Steinhoff’s woes deepened on Friday when Moody’s Investor Service hit out at its board and slashed the group’s credit rating by four notches to junk. The group’s ratings were also put under review for further downgrade.
Moody’s said its decision reflects the uncertainties and implications for the company’s liquidity and debt capital structure arising from fraud allegations against the group.
“Given that allegation of accounting irregularities were raised and rebutted in August and again in November calls into question the quality of oversight and governance at Steinhoff.
“Should further details of the accounting irregularities put additional pressure on Steinhoff’s financial condition, this could lead to further downward pressure on the ratings,” Moody’s said.
The experience-laden board has come under intense scrutiny since it admitted earlier in the week that it had found “accounting irregularities” requiring further investigation in the group. The board also said there was the possibility it would restate prior years’ financial statements. The scandal saw the group’s chief executive Marcus Jooste quit sending the share price into free fall. The group’s share price closed 40 percent down on Friday at R6 as the company stock lost a massive R150 billion since Tuesday.
Jooste has been replaced temporarily by the firm’s majority shareholder and billionaire Christo Wiese, who also chairs the group.
The group’s 12-member supervisory board comprises some highly regarded business people including former Sanlam chief executive Johann van Zyl, who was appointed to the board in May last year.
Another board heavyweight is Deenadayalen Konar is the board’s deputy chairperson. He has been a member of the board since 1998 and also serves as a non-executive director in the boards of Lonmin Plc, Alexander Forbes, Sappi and Exxaro Resources.
The group’s founder, Bruno Steinhoff is also a board member. Along with Jooste and Wiese, Steinhoff was investigated in an insider trading scheme triggered by Steinhoff’s R63 billion acquisition of Pepkor in 2014.
Asief Mohamed, the chief investment officer at Aeon Investment management, said both the executive and non-executive directors’ performance in JSE listed companies has been less than satisfactory.
”It appears that investors, in general, have lost faith in the executive and non-executive directors of Steinhoff. In general directors of listed companies in South Africa have been exposed as being poor in their fiduciary responsibilities,” Mohamed said. Moody’s, in its rating action also took issue with Steinhoff’s complex structure.
“Steinhoff’s credit profile comprises complex corporate legal structure and financial reporting considerations. This is a feature of rapid expansion by the company through acquisitions. This complicates the assessment of trend lines for credit metrics.”
”Last year alone the group acquired US-based Mattress Firm for $3.8bn, South Africa’s footwear retailer Tekkie Town €230m, UK based retailer Poundland £610m and Australias Fantastic Holdings for €262m.
Late on Thursday Finance Minister, Malusi Gigaba, requested retirement fund regulators including the Public Investment Corporation to provide a report on the extent to which retirement funds are exposed to Steinhoff. The JSE also announced that it had launched a probe into the retail
Sean Ashton, the chief investment officer at Anchor Capital, said at this stage, there are clearly more unknowns than known information pertaining to the group’s real financial position and operations.
“It is likely that fundamental value is above current levels – even in a break-up of the business scenario – but the company has clearly lost the trust of institutional investors (ourselves included) and this could weigh on listed values for some time,” Ashton said. Steinhoff has been on an acquisition drive in recent years.
Viceroy Research, this week released a report that said Steinhoff pays a far lower tax rate than it should when compared to its component companies. It said this is due to its findings that companies acquired by Steinhoff paid far higher tax rates prior to acquisition than the entity does after acquiring them. “Given the sizable portion of Steinhoff’s revenue these companies represent, Steinhoff’s effective 2016 tax rate should be higher. Steinhoff’s effective tax rate is also consistently far below the South African rate of 28 percent,” Viceroy said.