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Steinhoff finds $1.1bn under the mattress. Is it enough?

Johannesburg - Steinhoff International’s quest for cash has yielded about $1.1bn from asset sales as the embattled retailer struggles to stay afloat. The question is whether the relatively small steps it’s taken can forestall more radical ones. 

Since revelations last month of accounting irregularities, Steinhoff sold the company jet, shed stakeholdings and sought to refinance debt to free up funds. It even ended its sponsorship of the rugby team at Stellenbosch University, the alma mater of former CEO Markus Jooste.

“Scrambling around to find relatively small amounts of money points to the extent of the problems,” said Charles Allen, a London-based analyst at Bloomberg Intelligence.

In its largest move so far, the company on Monday sold R7.1bn of stock in financial-services firm PSG.

Yet Steinhoff, which snapped up French furniture retailer Conforama, British discount chain Poundland and Mattress Firm of the US in the past decade, may have little choice but to begin unwinding that buying spree, said Syd Vianello, an independent retail analyst in Johannesburg. 

“Selling smaller assets that are not essential to its operations is part of its strategy,” said Vianello, an accountant by training who has followed the industry for about 30 years. “But I don’t think it will stop there. Banks will want their money and want it quickly, so there will be big sales forced on them.”

Steinhoff shares have fallen 84% since December 5, the day it announced the discovery of the accounting problems and the departure of Jooste as CEO.

Seven weeks on, investors are still in the dark about the scope of the irregularities. Since hiring auditor PwC to investigate, Steinhoff has said it may have to restate earnings going back to at least 2015. Questions over the accounts and the company’s sprawling operations are complicating efforts to estimate its cash needs.

The group had about €18bn of exposure to banks, bondholders, suppliers and other creditors at the end of March, as well as €3.1bn of cash, according to Steinhoff’s first-half earnings statement. It indefinitely postponed the release of full-year figures last month.

Bond and loan payments coming due in 2018 at Steinhoff and its subsidiaries amount to almost €1.5bn, according to data compiled by Bloomberg.

The retailer has already parted with some of the assets it accumulated. French unit Conforama sold a 17% stake in Showroomprive for €79m, about half what it paid for the stake in May of last year, while Steinhoff sold a flagship store in Vienna for €60m. A previous sale of a stake in PSG Group raised about $345m.

Steinhoff offloaded its Gulfstream 550 jet, purchased last April, to US aircraft broker Avpro for an undisclosed price. The plane was advertised for $24.8m in 2016 in a sales brochure that showed the luxurious interior fitted out in cream-coloured leather seating, wood panelling and a marble-and-brass bathroom.

Steinhoff also managed to raise as much as $472m in financing for units in France and the US, mostly from investment fund Tikehau Capital SCA and Barclays, It also got a $254m credit line for Poundland in the UK from Davidson Kempner Capital Management, according to people familiar with the matter.

The company’s former bosses are also scrambling for cash. Billionaire Christo Wiese, who resigned as chairperson on December 15 but remains Steinhoff’s largest investor, sold shares in Shoprite [JSE:SHP] for about R4.2bn as well as stock in drugmaker Aspen Pharmacare [JSE:APN]. Jooste has been auctioning off racehorses and put a plot on a luxury estate up for sale for R15m.

Steinhoff said last week it’s seeking about €200m to help maintain liquidity at its European businesses, while a planned refinancing of all of its South African debt will allow the company to free up funds for the rest of the company.

Its lenders, however, are keeping it on a tight leash. A meeting with banks in London on December 19 led to little progress because Steinhoff couldn’t clarify the extent of the accounting issues. The next meeting with European-based creditors is scheduled for Friday in London. The company is also planning to request waivers on the terms governing some its existing financing.

Four of the biggest US banks were already stung to the tune of more than $1bn in total, mostly after writing down margin loans made to Wiese and backed by Steinhoff’s shares.

In addition to pulling support for the rugby, cricket and hockey teams at the university in Stellenbosch, Steinhoff curtailed sponsorship of South Africa’s world champion seven-a-side rugby team. It’s maintaining two corporate social investment programmes - an underprivileged schools project and a programme that supports about 400 AIDS orphans in Soweto.

As student athletes prepare to return to Stellenbosch University for the new academic year, the school says it’s confident it will find new sponsors.

“We are surely going to miss the additional investment,” said spokesperson Martin Viljoen in an email, declining to reveal how much money Steinhoff had provided. “However, plans are already in motion to ensure that it is business as usual.”

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