FT : Investec and pension fund suffer from Steinhoff scandal

Investec and pension fund suffer from Steinhoff scandal
Home retailer postpones creditor meeting after shares plunge 80%

Investec, the Anglo-South African lender, and the South African government employee pension fund disclosed substantial potential losses from the accounting scandal at Steinhoff, even as the Johannesburg exchange opened a probe of the global home retailer.

Steinhoff’s shares have plummeted more than 80 per cent in Frankfurt and Johannesburg since it announced last week that it was investigating “accounting irregularities” and warned about the “recoverability” of €6bn in assets outside South Africa.

On Monday, Investec said it could lose up to 3 per cent of its group annual post-tax operating profit from trading in derivatives linked to Steinhoff. The bank said it holds Steinhoff convertible bonds and loans to Steinhoff Africa, a spin-off of the company’s African assets.

The Public Investment Corporation, which manages the South African pension fund, said on Monday that its 10 per cent stake in Steinhoff amounted to 1 per cent of its total assets. The collapse in Steinhoff’s shares was “significant but manageable”, the fund said.

The Johannesburg stock exchange said in a statement that it had launched an investigation into whether Steinhoff had breached its listing rules, including “previous financial disclosures made to the public” before the announcement of accounting regularities.

The exchange said it recognised “the serious impact the recent disclosures by Steinhoff International regarding accounting irregularities has had on investors”.

German prosecutors are already probing whether Steinhoff’s financial statements included inflated assets and revenues.

Steinhoff, which owns 40 brands in 30 countries including the UK’s Poundland and South Africa’s Pepkor, postponed a meeting with creditors from Monday to December 19 and hired boutique firm Moelis to advise it.

“The group is asking for and requires continued support in relation to existing facilities,” Steinhoff added in the statement. Global banks are on the hook for billions of US dollars in lending to the company, which expanded aggressively in recent years through debt-fuelled takeovers of retail businesses in the UK, US and Europe.

Steinhoff’s collapse has also wiped billions of dollars off the fortune of Christo Wiese, its biggest shareholder and one of South Africa’s richest people. He has taken over as executive chairman after Markus Jooste resigned as chief executive last week. Mr Jooste wrote to associates last week that he had “caused financial loss to many innocent people.”

South Africa’s main opposition Democratic Alliance said on Monday that Mr Wiese and Mr Jooste should be called before the parliament as part of public hearings into the collapse. “We need to get stuck into what may be one of the biggest corporate scandals in the history of South Africa,” said David Maynier, the DA finance spokesperson.

KPMG, the accounting firm, has also been drawn into the scandal over its work advising on Steinhoff’s 2014 acquisition of Pepkor, then owned by Mr Wiese.

Khaya Sithole, a chartered accountant and critic of KPMG’s ties to other scandals in South Africa, said the deal had been “viewed with serious scepticism” over the complexity of the transaction. Mr Wiese swapped his Pepkor investment into a 20 per cent stake in Steinhoff under the deal.

“If the entire deal history of Steinhoff had to be scrutinised I suspect KPMG might find it difficult to explain how they concurred with the valuation of the deal,” Mr Sithole said.

KPMG said that the role of its South African arm in the Pepkor transaction was “limited to considering the terms and conditions of the acquisition and to providing an opinion as to whether details concerning the offer were fair to Steinhoff shareholders.”

“As KPMG South Africa has never been the auditor to Steinhoff or Pepkor, we played no role in auditing the transaction or to providing advice on the accounting of this acquisition,” it added

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:
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Analyst comments:
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>>> US Early premarket gappers

Early premarket gappers
Gapping up:
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Gapping down:
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