ECB takes multimillion hit to offload Steinhoff debt
Central bank ditches entire holding of bonds from scandal-hit South African retailer
The European Central Bank has sold its entire holding of bonds from scandal-hit retail conglomerate Steinhoff International, booking steep losses to offload debt from the South African company that is facing multiple probes into its accounting practices.
Disclosure of the bond sale comes days after Steinhoff’s chief financial officer stepped down from his role last week, and marks the latest blow for the group since it had to postpone publication of its 2017 annual report in December because of accounting irregularities.
The central bank bought into the €800m bond issue by Steinhoff’s European subsidiary in July last year, when the debt carried an investment grade rating. That meant the ECB was able to buy the bonds under its corporate sector purchase programme, in which it buys debt from euro-area companies as part of its quantitative easing initiative.
While the ECB does not disclose the size of its holdings of debt from different companies, every week the central bank publishes a list of unique identifiers for the different bonds that it holds. Data published on Monday showed that it no longer owns debt from Steinhoff and an ECB spokesman confirmed that it had sold its position.
A person familiar with the matter said that the ECB previously held about €100m of the Steinhoff bonds. These notes have traded between 49 cents and 59 cents on the euro in the past week, according to data from Tradeweb, suggesting that the central bank could have booked losses in the region of €50m on the debt sale.
While the ECB has previously announced that it would not be forced to sell bonds if a company’s rating fell below investment grade — which Steinhoff’s did in December — the retail conglomerate is facing a messy debt restructuring that could have proved highly contentious for the central bank to participate in.
Steinhoff has raised debt at several different entities in a complex web of holding companies, leading analysts at credit research firm CreditSights to describe its corporate structure as “chaotic” in a recent report.
“The risk of skeletons in closets is high and the quality of bond structures and asset protection is low,” the analysts said.
Steinhoff, which owns the UK’s Poundland and Mattress Firm in the US, last week said it wanted to hire an external independent debt restructuring expert to act as its chief restructuring officer. Moelis & Company and AlixPartners are already advising the company, which has declared that it wants to raise €3bn in cash through asset sales.
This is not the first time in recent months the central bank has sold its entire holdings of debt from a single company. In November, the ECB disposed of all of its bonds from Glencore after the commodities giant relocated a finance entity from Luxembourg to Jersey.