Steinhoff won't find it easy to raise funds
Steinhoff, which almost went bust in 2017 amid an accounting scandal, told the market on Friday that, as part of its overall litigation strategy, it would consider an early resolution of the claims brought against it and would possibly issue equity as part of the options to settle.
“Given the complexity of the Steinhoff litigation landscape, there can be no certainty that resolution of the disputes can be achieved prior to a final determination by the relevant courts, but the Litigation Working Group continues to explore the possibility of finding an acceptable solution to the current disputes,” the company said.
Steinhoff appointed the Litigation Working Group to lead its litigation strategy as it faces multiple claims brought in South Africa, the Netherlands and Germany.
Steinhoff said on Friday that, given the numerous parties involved, the litigation situation was highly complex.
In addition to the claims, Steinhoff is embroiled in a legal battle to recoup about R1bn from ex-chief financial officer Ben la Grange and chief executive Markus Jooste for failing to prevent the accounting crisis in late 2017.
Jooste quit in December 2017 and La Grange was suspended eight months later.
Lester Davids, a trading desk analyst at Unum Capital, said on Friday that the appetite for equity was likely to be soft.
“Considering the complexity of the financial affairs, which includes the pending litigation from various parties, there may be muted demand by equity shareholders to allocate capital to a business where it is debatable whether the group is a going concern,” Davids said. He said Steinhoff value had been destroyed following the accounting scandal, with the company losing more than 90percent of market capitalisation.
“With the share price trading at all-time lows currently below 100cents, it will have to be determined at which level the equity issuance would take place considering the value already having been destroyed,” Davids said. The group said on Friday it was continuing to implement the remediation plan, which was developed to address corporate governance weaknesses.
Michael Treherne, a portfolio manager at Vestact Asset Management, said issuing equity would mean that current shareholders would be diluted, which people never liked.
“The big question will be how big the dilution will be. Having said that, if this is what it takes for the business to survive, then it is what they need to do. In our view, there is still a real chance that Steinhoff could go to zero. They have a massive debt burden, their European operations are struggling and there are all the legal issues,” said Treherne.
Treherne said the appetite for equity would likely come down to the price of the new equity.
Steinhoff said it would be holding an extraordinary general meeting tomorrow when the resolution to appoint Mazars as its new statutory audit firm will be proposed. Steinhoff nominated Mazars at its annual general meeting in August.