steinhoff
Steinhoff share price. Source: Fin24
  • Steinhoff's share price slumped to a fresh record-low of 97c on Monday.
  • The main investor concern is whether the scandal-hit company can outlive the many legal claims coming its way.
  • One fund manager puts Steinhoff's odds of surviving at 60% – and says jailing former CEO Markus Jooste could help.
  • For more stories, go to Business Insider SA.


On Monday, Steinhoff slumped to a new low: 97c a share. That means the company has now 99% of its value in the past two years.

Since then revelations of fraudulent accounting, which we now know may have amounted to more than R250 billion, have wreaked havoc on its investors.

The storm has not passed – as the once high-flying company's now ever-shrinking share price indicates:  

Source: Sharedata

Steinhoff continues to grapple with three main issues, says Wayne McCurrie of FNB Wealth and Investments.

Liquidity.

The company has a debt burden of €8.8 billion (R150 billion).

Steinhoff has business units that are sustainable – if the group can get access to affordable credit and creditors remain patient.

“By and large, current creditors know that if they call their loans they will get nothing out,” says McCurrie. “Therefore it is in their best interests to facilitate the continuation of the Steinhoff business. I would think that this risk has largely been neutralised by the negotiated agreements that have been put in place, coupled with the sale of certain units.”

“Even if Steinhoff can’t meet their obligations in terms of these arrangements, creditors will most likely negotiate again as there is no upside for them if they refuse to give new terms.”

Continued uncertainty about the real state of affairs at Steinhoff.

Steinhoff’s board has refused to release the PricewaterhouseCoopers report into the fraud and misrepresentation in its books in full. 

“The various reports that have - or are still investigating what happened, have not been fully released to the market (for many reasons). This uncertainty will still continue until these reports are released,” says McCurrie.

The biggest issue threatening Steinhoff: litigation.

“There are already numerous class and single actions instituted against Steinhoff, with many still to come. There will also be numerous statutory actions instituted,” warns McCurrie.

The authorities are expected to take action because of tax, legal and regulatory breaches.

“It is impossible to quantify the extent of this liability and this uncertainty will persist for at least a decade, as it will take a very long time until some certainty is reached.”

In theory, he says, all shareholders who held shares when Steinhoff collapsed could sue for the entire loss of capital – R200 billion, if not much more.

Combined with the statutory claims, legal claims could exceed the current market capitalisation by multiples.

“Because you as an investor have no idea how this will eventually pan out, you cannot actually make a sensible evaluation of the company’s valuation.” It is almost irrelevant what is actually happening to the underlying Steinhoff business, he adds.

He believes the only possible resolution for current shareholders to get some sort of value, would be for all claimants to get together with the company and come to an agreement that gives a chance of survival for Steinhoff.

“If the claimants continue, there is simply not enough assets to pay the settlements that are sure to come into the future from all the claims against Steinhoff. Then nobody wins.”

The odds of survival

Petri Redelinghuys, founder of Herenya Capital Advisors, believes there remains a 60% chance of survival for Steinhoff.

“If this was a small business, it would have gone under long ago,” he says. But thousands of jobs are dependent on its survival, and many retirement funds remain invested in the share.

There is a fiduciary duty to protect these interests, he adds. He believes that the company’s plans to sell more of its assets, and its listing of Pepkor Europe could help it stay afloat.

While the legal threats remain daunting, it would bring some degree of comfort if Jooste was sent to jail, Redelinghuys believes. “It is disheartening for all involved to witness the ability of rich people to get away with murder.”

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