R145bn Steinhoff Austrian debt must be restructured

Steinhoff’s web of intercompany loans was brought to light for the first time on Friday, raising questions about the value of its hitherto prized SA assets. A Business Day report says the embattled furniture retailer – which admitted to accounting irregularities in December 2017 – must urgently restructure €9.6bn (R145bn) in external debt held primarily by its Austrian finance companies, Steinhoff Europe and Steinhoff Finance Holding. However, the extent to which it will manage to restructure debt could be hampered by widespread intercompany loans. These had ‘muddied the waters’, said an analyst. ‘We are talking about a few billion euros flowing into and out of these two (Austrian) entities, and to other South African companies,’ he said. These loans made it difficult to separate the entities that had value, previously considered to be the South African businesses, from those that had negative value. SA’s exchange-control laws, directors’ duties and financing restrictions at operating companies restricted Steinhoff’s ability to ‘upstream cash’ from its underlying businesses, the company said. It added it was working on a detailed plan that could be ‘put to creditors shortly’, which would include agreements on asset disposals to fund its ongoing liquidity requirements. Steinhoff hoped to push back by three years the dates at which its debt matures and pay no cash interest on this debt, except on loans to its real estate business, Hemisphere.

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In a new development in the saga, it has been revealed that Steinhoff International repurchased 40.4m shares from its employee share-participation scheme in a transaction valued at about R2.3bn just weeks before the December 2017 announcement about ‘accounting irregularities’ wiped out most of the value of the shares. Another Business Day report says the purchase of shares from a special purpose vehicle Steinhoff Sikhulasonke Investments, which was set up as an employee/ BEE initiative in 2008, was part of a 78.4m share repurchase transaction undertaken by Steinhoff around October 2017. It cost about R4.7bn. The report notes although it is not uncommon for companies to repurchase their shares, this appears to have been the first repurchase by Steinhoff since its listing in Frankfurt in 2015. Share repurchases can be used as a tool for capital management but can also be manipulated to support a share price or boost reported earnings per share. A Steinhoff spokesperson has confirmed that the 78.4m shares repurchased in October included the 40.4m held by Steinhoff Sikhulasonke. The BEE scheme was due to mature in December 2017. The JSE requires details of repurchases from related parties to be disclosed at the time of the repurchase. However, Steinhoff said the Sikhulasonke repurchase ‘was not a related party transaction’ and there was therefore no need to make the disclosure. It added that further details would be disclosed in the group’s annual financial statements.

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