The rally, which has seen the group gaining nearly 90percent last week, has come to an abrupt halt when it was spooked by the company’s decision to extend its lock-up early bird deadline.
The stock continued its downward trend for the second consecutive day closing 4.41percent down at R2.82 from Monday’s close of R2.95.
Cratos Capital senior analyst Ron Klipin said the group was haunted by the extension of the deadline by which creditors must agree to the lock-up agreement and be eligible for an early-bird fee in connection with the restructuring of the company’s debt.
Klipin said the stock fell, despite the debt-restructuring plans that could ease the group’s liquidity problems.
“The above debt restructure following the dividend paid on the cumulative preference shares may prove to be a game changer,” Klipin said.
“Steinhoff International has a virtual debt standstill until 2022 with interest payable being capitalised.
“This will enable the group to clean up its balance sheet and sell non-core assets, with some chance of generating positive cash flow,” Klipin added.
On Monday, Steinhoff said it had pushed the deadline to Friday, in order to seek approval from its creditors to accept an option that would allow it not to pay any debt for the next three years.
The acceptance by creditors would allow them to get additional payment from Steinhoff.
The group has debt of 9.4billion (R145.45bn).
Klipin said the debt restructure would also give the company time to reduce costs at centre.
“If the above scenario proves its mettle, there may be less pressure to sell the more profitable core assets,” he said.
The group has already sold stakes in KAP Industrial Holdings, the PSG Group and reduced the stake in its subsidiary Steinhoff Africa Retail (STAR) to 71percent.
“The most significant of these is STAR, which has strong brands in the form of Pep, Ackermans, Tekkie Town as well as brands in furniture, appliances, electronics and building materials.
“The strength of the group lies in the diversified nature of its retail offering, while positioning it in the lower LSM sector is a positive with consumer spending under pressure,” Klipin said.
Steinhoff has plunged more than 95percent since the group admitted to financial irregularities in December and failed to publish its audited results for 2017.
Of its subsidiaries, only STAR has shown some glimpse of resilience when it reported a 9percent increase in operating profit to R3.3bn and that headline earnings per share increased by 12.2percent to 52.6cents a share for the six months to the end of March.
“STAR is therefore the jewel of the crown in Steinhoff, and it is unlikely that it would be sold by its parent company,” Klipin said.
- BUSINESS REPORT