#Steinhoff scandal sees shares tumble, Wiese take control

Christo Wiese, the billionaire chairman of Steinhoff ­Holdings. Picture: Waldo Swiegers/Bloomberg

Christo Wiese, the billionaire chairman of Steinhoff ­Holdings. Picture: Waldo Swiegers/Bloomberg

Published Dec 6, 2017

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Johannesburg - Steinhoff International's

shares crashed on Wednesday after it revealed "accounting

irregularities" and its CEO quit, shocking investors who had

backed the rapid reinvention of a South African furniture chain

into an international retail empire.

It put Christo Wiese, its largest shareholder and chairman,

in charge and later sought to give "additional comfort" to

investors worried about its ability to fund its existing

operations, saying it had ‍identified measures that would give

it around 2 billion euros ($2.4 billion) of additional

liquidity.

Steinhoff said chief executive Markus

Jooste, who oversaw its expansion to one of the world's largest

household goods retailers over nearly 20 years, had resigned and

PwC would undertake an "independent investigation".

The company later said its chief financial officer remained

in his position and there was no evidence to suggest he had any

involvement in the matters being investigated.

"It's a red flag, this is something very serious," said

Peter Brooke, portfolio manager at Old Mutual Investment Group,

a top 20 shareholder in Steinhoff. It also raised wider

questions about South African corporate governance and would

have a negative impact on the country's assets, he added.

Read: 

Steinhoff has been aggressively expanding in developed

markets since moving its primary share listing from Johannesburg

to Frankfurt in 2015, snapping up Britain's Poundland, U.S-based

Mattress Firm and Australia's Fantastic.

Steinhoff said Wiese would "embark on a detailed review of

all aspects of the company's business with a view to maximising

shareholder value", but its South African shares had slumped 61

percent to close at 15.87 rand, after hitting an eight-year low

of 13.50 rand in earlier trading.

Steinhoff stock closed down 63 percent in Frankfurt, while

its bonds also sold off sharply.

A spokeswoman for Deloitte Accountants B.V., which signed

off Steinhoff's 2016 results, declined immediate comment.

Steinhoff, which also said it was postponing the release of

its 2017 results until the probe was over, has been under

investigation for suspected accounting irregularities by the

state prosecutor in Oldenburg, Germany since 2015.

The company has said that move related to whether revenues

were booked properly, and whether taxable profit was correctly

declared.

Reuters reported last month that Steinhoff did not tell

investors about almost $1 billion in transactions with a related

company, despite laws that some experts say require it to do

so.

File Image

Also read: Steinhoff shares nosedive after CEO Markus Jooste resigns

It is unclear what accounting irregularities the company was

referring to on Wednesday. A spokesman declined further comment

and attempts by Reuters to contact Jooste were not successful.

There were wider repercussions in the Steinhoff group, with

Ben la Grange, chief executive of Steinhoff African Retail

(STAR), which includes control of Shoprite,

also resigning and STAR shares falling more than 30 percent.

Omri Thomas of Abax Investments, the 15th largest investor

in Steinhoff, said because there was no immediate prospect of

any clarity on its results, it was hard to put a value on

Steinhoff and this had prompted the severe share reaction.

TAX RATE QUESTIONS

Analysts have long questioned how Steinhoff managed to

achieve such a low tax rate. Its tax rate has averaged 12

percent over the past five years -- half the headline corporate

tax rate in its main markets and less than half the rates paid

by listed competitors including France's Casino, Germany's Metro

AG and South Africa's Woolworths.

Experts say such low tax rates can be the result of complex

corporate structures which stretch accounting rules and such

arrangements are occasionally challenged by courts as unlawful.

"The company recorded a very unusual tax rate of c. 15

percent and also guided that this would be the rate going

forward," Juergen Kolb, an analyst at Kepler Cheuvreux, said in

a note, adding that if this tax rate was at risk it could also

hit Steinhoff's cashflow.

Kolb also raised the possibility that as chairman, Wiese's

role could now come under scrutiny too.

Steinhoff, which employs 130,000 people, did not respond to

requests for information about what, if anything, Wiese knew

about the accounting problems now being investigated.

Investors also told Reuters they are concerned Wiese may be

forced to sell shares he bought last year with borrowed money,

which would depress Steinhoff's stock further.

Wiese borrowed 1.6 billion euros ($1.9 billion) to buy

additional Steinhoff shares through a family trust in September

2016, pledging 3.2 billion euros of his existing holding as

security to the investment banks that lent the money.

With the share price plunge taking the security below the

value of the loan, Wiese may be required by the financing banks

-- Citi, Goldman, HSBC and Nomura - to post more shares as

collateral, or sell part of his holding.

Reuters

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