CAPE TOWN - A German investigation into alleged accounting fraud by senior managers at Steinhoff’s European operations could not have come at a worse time for its top shareholder, Christo Wiese.
The South African retail magnate is about to split Steinhoff’s African businesses so investors can better judge the value of its faster-growing ones in the US, Europe and Australia. He thinks doing so will improve returns for shareholders.
But as he forges ahead with the separation next month, news of the fraud probe on Thursday wiped more than $2billion (about R26bn) off the value of Steinhoff’s shares, which are listed in Germany and South Africa and were valued at $20bn on Friday.
“It’s very bad timing for Steinhoff. You obviously don’t want to go into a listing with something like that hanging over your head. It’s a distraction and shareholders might start getting a bit grumpy,” said Tota Tsotsotso, the managing director at Bataung Capital in Johannesburg.
Wiese, who owns nearly 22% of Steinhoff’s shares, said a report on the investigation by influential German monthly Manager Magazin, which implicated Steinhoff chief executive Markus Jooste, was “devoid of any truth”, in comments to 702 Talk Radio on Friday.
The crux of the allegations is that senior managers at Steinhoff inflated revenue figures by the sale of assets to purportedly external parties, which were actually associated with Steinhoff.
Steinhoff has denied any wrongdoing, saying its own externa * audit found no evidence it had broken rules in the case which dates back to 2015.
“What does he do? Delay the listing? I don’t think so,” said one banker who has worked with Wiese in the past.
“Remember, their offices were raided over the same issue in December of 2015, a week or so before the Frankfurt IPO and they went ahead with it. This is a minor bump. I’m pretty sure Wiese can get around it,” the banker said.
But Wiese has more than one problem on his hands. The company that is second only to IKEA in Europe’s furniture market and owns Poundland in the UK, Conforama in France and Mattress Firm in the US, has seen one of its main money-spinners in Europe take a pounding.
Shares in investment heavyweight Brait, in which Wiese is the top shareholder, have dropped by half in the past year as weak consumer demand and tougher competition in Britain hurt one of its biggest sources of profit, no-frills clothing chain New Look.
In June, Brait, which also owns Virgin Active and grocer Iceland Foods, slashed the value on its books of New Look by about 80% to R7.1bn. That meant New Look’s contribution to Brait’s net asset value fell to 15% from 45%, sending New Look’s bonds into free fall.
“New Look has so far been a disappointing trade for the market, and that’s been
further challenged by the weak consumer numbers which
have been fast evolving,” said Stefan Isaacs, the manager of the M&G High Yield Bond Fund.
Bond investors said the company’s problems have been compounded by the loss of top managers and little evidence that a turnaround plan, which includes expanding deeper in Europe and cutting costs, was bearing fruit.
Shares in Steinhoff on Friday recouped about 3%, or only a quarter of the losses suffered the previous session that sent them to their lowest so far in Frankfurt and to levels last seen in 2014 in Johannesburg.