Scandal-hit Steinhoff’s lenders start cutting credit, shares tumble

PUBLISHED: Wed, 20 Dec 2017 10:54:00 GMT

Steinhoff (SNHG.DE) (SNHJ.J) said on Tuesday it had started to lose credit lines from lenders and was still unable to determine the scale of accounting irregularities which have wiped more than $10 billion off its market value over the past two weeks.

The embattled South African furniture retailer, which once vied with Swedish giant IKEA for global market share, called for support from creditors at a meeting in London as it grapples to contain the worst crisis in its five-decade history.

In a presentation prepared for the meeting, it said some credit facilities were being suspended or withdrawn and insurers were cancelling or reducing credit insurance. It said support from its creditors, which include Germany’s Commerzbank AG (CBKG.DE) would be needed to maintain stability.

Uncertainty about Steinhoff’s finances has hammered its shares, listed in Frankfurt and Johannesburg, since it first disclosed what it described as “accounting irregularities” two weeks ago. The stock tumbled 20 percent further on Tuesday as it became clear the scale of the problem remained unknown.

“Given the ongoing forensic review, it is not possible to provide further detail regarding … whether any additional years financial statements may require restatement,” it said in the presentation, which it published on its website.

Steinhoff, which owns Mattress Firm in the United States, Conforama in France and Poundland in Britain, said in a statement on Dec. 7 there was a 2 billion euro ($2.36 billion) hole in its balance sheet.

It is sitting on 10.7 billion euros in outstanding debt, according to the presentation, with about 690 million euros notional facilities rolled over to date. It also has three convertible bonds worth 2.7 billion euros.

Creditors have started hiring advisors to consider their next moves, according to people familiar with the situation.

Several holders of convertible bonds have hired investment bank Houlihan Lokey (HLI.N) and law firm Kirkland & Ellis to help them deal with the matter, according to two people close to the matter. Representatives for Houlihan Lokey and Kirkland & Ellis were not immediately available for comment.

Holders of 800 million euros in bonds issued by Steinhoff Europe and of other smaller private placements in Germany were considering joint action, a third person said.


The lack of clarity has rattled investors.

“Today’s message was mainly: we’re working on it. We don’t know anything yet but will come back with more as soon as possible,” a person who listened to Steinhoff’s presentation said.

Ryan Woods, a trader at Independent Securities, said of the company’s presentation to lenders. “It points to uncertainty and markets hate it … More importantly, are banks going to allow them to have their lines of credit?”

In its efforts to steady the company, Steinhoff named Chief Operating Officer Danie van der Merwe, a company veteran of two decades, as acting chief executive, the second person to hold the executive role since CEO Markus Jooste quit on Dec. 5.

Steinhoff’s top shareholder Christo Wiese initially stepped into the executive post, but abruptly resigned as chairman and de facto CEO last week.

Van der Merwe, with acting chairperson Heather Sonn, now has the task of steering the recovery of a firm that grew from a modest distributor of furniture in communist eastern Europe to a global retail empire spanning food, furniture and clothing.

Steinhoff had been a “must have” for investors, who were won over by its reinvention and ambition, even though it faced investigation for suspected accounting fraud in Germany since 2015. The company’s primary listing is in Frankfurt.

Four current and former managers are under suspicion of overstating revenues at subsidiaries, prosecutors have said.

The company has previously said the investigation related to whether revenues were booked properly, and whether taxable profits were correctly declared.

Additional reporting by Tanisha; Editing by Edmund Blair and Jane Merriman

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