Overstated sham deals see share price claw back 7%
DURBAN – Steinhoff International strengthened on the JSE on Monday after PwC showed that estimated fictitious transactions that crippled the group were overstated by nearly 50 percent.
The PwC summary report also revealed that the accounting scam that led to the writing off of more than $7.4 billion (R107bn) in Steinhoff’s market value 15 months ago did not permeate to its biggest subsidiary, Pepkor.
Steinhoff has a 71 percent stake in Pepkor, which has a market capitalisation of R65.45bn.
Pepkor chief executive Leon Lourens said the report confirmed that the company’s financials were above board. “This again illustrates that the appropriate financial and corporate governance structures are in place within Pepkor,” he said.
“It also confirms the values and principles which we stand for and on which our business was built. Pepkor will continue to operate in this way and remains focused on creating value for our customers and other stakeholders.”
Steinhoff closed 7.07 percent higher at R1.97, taking the retailer market capitalisation to R8.49bn.
PwC said an estimated e6.5 billion (R106.54bn) worth of fictitious transactions took place between 2009 and 2017, inflating the group’s profits and asset value.
Jordan Weir, a trader at Citadel, said while the report did not shed much light on exactly what transpired at Steinhoff, it gave investors an idea of the scale of the accounting issues hidden within Steinhoff’s past.
“The overview also touches on how the breach of standard ethical practices was rife within the firm.
“Most concerning at this stage is the fact that there is a chance that PwC won’t even disclose the full report, comprising some 3 000 pages, to the rightful shareholders,” Weir said.
“This, on its own, is ethically questionable and unfair to underlying shareholders.”
Yesterday, Steinhoff ex-chairperson Christo Wiese said he was open to negotiations over his R59bn claim against the troubled retailer which he filed last year.
Wiese has a stake of about 20 percent in Steinhoff which he bought in 2014 when he sold his clothing retailer, Pepkor, to Steinhoff in exchange for shares. “I would expect Steinhoff to give me back my money, and I will give them back their worthless shares,” Wiese was quoted as saying yesterday in the media.
Weir said fictitious transactions numbered less than 50 percent than initially shown on management’s 2018 assumptions.
“Having said this, fictitious transactions are still estimated to have amounted to over R100bn,” he said.
Ron Klipin, a senior analyst at Cratos Capital, said it remained difficult to ascertain the exact extent of the fictitious transactions.
He added that the recovery of the stock was a result of losses speculated to be below the e12.4bn reflected in the March 2018 interim report.
“This makes an unscrambling of the egg almost a hit and miss until additional light is shed, possibly in April 2019,” Klipin said.