By Francesco Canepa

FRANKFURT, Dec 11 (Reuters) – The European Central Bank held on to its holding of Steinhoff’s bonds last week even as they sold off and were downgraded to junk amid an accounting scandal at the South African retailer, ECB data showed on Monday.

Steinhoff, whose brands include Britain’s Poundland, disclosed “accounting irregularities” on Wednesday and parted ways with its chief executive, triggering a collapse of its shares and bonds and a downgrade by ratings agency Moody‘s.

The bond still featured on a list of ECB holdings published on Monday. While its size was not disclosed, it was likely to be a small part of the ECB’s 130 billion euros portfolio of corporate debt, which is built in proportion to the amounts outstanding in the market.

These purchases have been criticised by European lawmakers, academics and activists for being too risky for a central bank both from a financial and reputational point of view.

“The Steinhoff scandal raises concerns about the lack of oversight regarding exactly what activities the ECB’s corporate bond programme is subsidising,” said Stanislas Jourdan, who coordinates a campaign calling for the ECB to distribute money to people instead.

Moody’s cut the company’s credit rating last Thursday by four notches to B1, deep into speculative territory, and raised concerns about its governance.

The ECB can only buy bonds with an investment-grade rating but does not have to sell them if they are downgraded below that threshold.

If Steinhoff’s debt was to be converted into equity, however, the ECB would find itself in a conundrum as the rules that it has given itself only allow for owning debt.

The Steinhoff bond, issued in July and due to mature in 2025, traded at 47 percent of their face value on Monday despite a small rebound. ($1 = 0.8478 euros) (Editing by Matthew Mpoke Bigg)