Industry analysts said the move was long expected as the company battled to salvage its liquidity after the dramatic R100bn drop in the value of its stock that led to the subsequent resignation of chief executive Markus Jooste last year.
Ron Klipin, a senior analyst at Cratos Capital, said there would be appetite for the transaction as STAR had strong brands such as Pep, Ackermans, Russells, Bradlows, Rochester and Hi-Fi Corporation.
“They have a nice diverse portfolio of strong brands and I don’t think they will have a problem in raising around R20bn or R25bn by placing shares in the market or via a book-build,” Klipin said.
STAR was spun off from Steinhoff in September last year and listed separately on the JSE. The troubled retailer owns 78.26percent in STAR.
Steinhoff has already raised about $1.2bn (R14.38bn) by selling stakes in PSG Group and KAP Industrial Holdings in a move that was meant to increase liquidity following its admission to accounting irregularities in December.
Klipin said the STAR brands generated a lot of cash because they focused on lower LSM markets, where strong spend and affordability have been predominant drivers.
“If it comes to extreme measures they could sell some of their international stakes, like Poundland and Pepkor Europe, to raise additional liquidity if necessary,” Klipin said. “However, Africa is the market to be in, so STAR will generate a lot of interest from investors.” Klipin said the STAR name might be changed in order to distinguish itself from the tainted name of Steinhoff International.
“Emerging-markets equities are also much in favour currently, which would make South African shares in demand, while the recently announced decline in inflation is also positive for our retailers,” Klipin said.
Jordan Weir, an equities trader at BayHill Capital, said the sale of the STAR stake was an option that could help to improve the company’s cash position and increase its short-to mid-term liquidity.
“It is difficult to determine at this stage. Currently the company is focused on working strenuously to address all negative allegations hovering over it, as well as restating certain historical financial results, ensuring that they are transparent to shareholders.”
Weir said Steinhoff might eventually turn to selling off its “bad businesses/investments” once all the dust had settled. “By stripping out the poor-quality businesses and moving towards a leaner company based on its core business, while continuing to raise necessary cash, shareholder confidence may start to improve,” Weir said.
Neil Brown, a co-fund manager and equity analyst at Electus Fund Managers, said the possible transaction would be determined by many factors.
“Until PwC has completed its independent investigation into Steinhoff, and Deloitte’s have completed Steinhoff’s September 2017 year-end audit, there is too much unknown and uncertain regarding Steinhoff’s financial and legal position,” Brown said.
Steinhoff shares declined 8.74percent on the JSE on Tuesday to close at R3.55.
- BUSINESS REPORT