Steinhoff International Holdings NV fell to a record low of 44 cents on the JSE on Monday morning, reducing the group’s market capitalization to less than R2 billion.
The share is down 75% from 1.70 rupees a few days ago, after an announcement about further efforts to reschedule debt payments reminded shareholders that Steinhoff is essentially insolvent and has run out of time.
The announcement bluntly stated that the value of Steinhoff’s assets remains lower than its liabilities and is likely to remain so until the end of June 2023, when Steinhoff is due to pay off debts.
Indeed, the plan that the underlying companies would perform well enough to bail the holding company out of its troubles did not work.
Steinhoff issued several statements to outline a new plan to buy a little more time. Unfortunately, the plan will give shareholders far less than they expected.
The new proposal will give creditors an 80% economic interest in Steinhoff and give shareholders just a 20% cut. Also, the 20% stake will be housed in an unlisted entity, which will do little to endear it to investors.
In exchange, the lenders will extend the maturity dates of the debt by three years, until June 2026. In certain cases, the lenders are also offering slightly lower interest rates.
Creditors are likely to end up with 100% if shareholders do not agree to the proposal and ratify it when resolutions to this effect are presented at the general meeting of shareholders.
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“In view of the assessment that the value of the group’s assets continues to be lower than its liabilities and will maintain it on June 30, 2023, and subject to further diligence and structuring, the commercial conditions of the expansion operation of expiration anticipate that individual CPU [contingent payment undertakings] creditors will be entitled to receive share capital in Steinhoff International Holdings NV (or any successor entity or other entity that replaces SIHNV as the ultimate parent of the group),” according to the announcement.
“The maturity extension operation proposes that the financial creditors will be entitled, individually and independently, to receive 100% of the voting rights and at least 80% of the economic participation in the assets after the closure of the group” .
It’s hard to believe that Steinhoff was one of the biggest companies on the SA stock market and listed in the JSE Top 40 index, a major benchmark for tracker funds and other portfolios, before the fraud was revealed accounting at the end of 2017 it wiped off more than 90% of its market value.
Once admired by employees, investors, fund managers and competitors, then-CEO Markus Jooste was ostracized.
Since then there have been calls for judicial action and the imprisonment of all those involved in the accounting scandal.
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Management warned investors in its notes on interim results for the six months to March 2022, published on 9 June 2022, that the group’s current assets exceed its current liabilities and its total liabilities exceed its total assets.
The balance sheet at that date recorded assets of 14,200 million euros, but a liability close to 17,100 million euros. The patrimonial value was given as a negative of 2,900 million euros.
So the current share price means shareholders have to pay Rs 1,920 crore for something with a book value of minus Rs 53,000 crore, even if management draws attention to the fact that the value of the financial statements reflects the historical value and not its fair value. . .
Management also said at the time: “The board does not intend to liquidate the company and the underlying boards still plan to recover its assets and settle its debts in the normal course of business.
“The conclusion of all material litigation, following the successful implementation of the Dutch SoP [suspension of payments] and the S155 Scheme has enabled management to actively pursue the next step in its strategic plan, which is to restructure the group with the aim of reducing debt and finance costs”.
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At the end of March, Steinhoff had a corporate debt of approximately 10 billion euros (about 184 billion rupees), according to the report.
“This debt is divided into several different classes, each with slightly different rights and obligations and each class is held by a number of different investors, primarily hedge funds or other investors who focus on distressed assets. All of these investors they have their own unique interests.
“Debt restructuring of this amount and complexity remains an extremely difficult task,” management said at the time.
The underlying companies, namely Pepkor in SA, Pepco in Poland and Mattress Firm in the US, are performing well and Pepkor and Pepco have fairly healthy balance sheets. Steinhoff’s consolidated results for the six months to March 2022 showed revenue up 12% to almost €25.2bn and operating profit up 11.7% to €297m.
A recent business update noted that revenues continued to rise, despite a challenging business environment characterized by high inflation, subdued consumer spending and continued supply chain disruptions.
The problem is high debt at the holding company level. Steinhoff had to pay €579 million (about Rs. 10.6 billion) in interest, while it earned only €297 million (Rs. 5.4 billion).
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“Steinhoff has too much debt and time is running out,” says Tebogo Mokone, portfolio manager at Afrifocus Securities.
“I don’t see them coming back from this one,” he adds, referring to announcements describing efforts to extend credit due dates. “We’ll have to wait and see if that’s successful.”
He notes that the underlying assets are performing as well as can be expected in the current economic conditions, but are unlikely to increase in value to a degree that would boost Steinhoff’s share price much further.
“It might even come down,” says Mokone.
Management noted in the interim report that the management of both solvency and liquidity risks remains a key concern and area of focus to ensure the continued financial stability of the group.
It seems that shareholders have not paid enough attention to the numbers and management’s warnings about Steinhoff’s delicate financial situation.
At the current price, the stock might be nothing more than a risky option with an (unlikely) positive outcome.
This article originally appeared on Moneyweb and has been republished with permission.
Read the original article here.
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