Markus Jooste’s complex, and highly profitable, JD Group trades

Just a few years after being named head of the retailer that became Steinhoff International Holdings, Markus Jooste was involved in a series of complex trades in a smaller South African competitor that yielded a multimillion-dollar payday for companies linked to him and board member Claas Daun.

The businesses made a profit of R901m selling JD Group stock 14 years ago, after buying in at a discount that was not shared with other investors, according to company documents and court and regulatory filings.

While JSE listing requirements dictated that all pricing information on transactions of that size had to be disclosed, JD Group’s CEO at the time, David Sussman, says he is sure all regulations were followed.

The deals happened at around the same time that companies linked to Jooste sold car-dealership properties and forestry plantations to Steinhoff for far more than market prices.

Jooste quit on December 5 2017, the same day the company reported accounting irregularities that have since wiped 94% off the retailer’s value, and the company has asked the police to investigate him.

Daun left the board in February.

Steinhoff, which now owns JD Group, has commissioned audit firm PwC to probe its finances. It says restatements may have to go back at least as far as 2015. Steinhoff says it will not comment on past transactions and relationships until the probe is complete.

The JD Group trades, which date back more than a decade, do not appear to have affected Steinhoff shareholders.

Jooste, who was appointed group MD in 2000, set up agreements with Daun from 2002 that would result in JD Group’s takeover of Steinhoff’s money-losing rival Profurn and the acquisition of JD Group shares at the discount, according to the documents.

Jooste’s lawyer Callie Albertyn did not respond to e-mails and messages left at his office. Daun did not respond to queries.

The dealing began in 2002, when FirstRand executive Theunis Lategan asked Daun, once a director of Profurn, to help rescue the struggling retailer. The following year, JD Group took over Profurn.

Following a 2002 rights offer by Profurn, underwritten by FirstRand, and its subsequent takeover by JD Group, FirstRand held 25% of JD Group’s shares with a cost basis of R14.17 per share — compared with the R19.06 they averaged in 2002, according to data compiled by Bloomberg.

Companies linked to Jooste and Daun bought the bulk of that stock from FirstRand at the discounted price of R14.17 and sold the shares for three times as much.

Lategan referred queries to FirstRand.

"The discount is extraordinary," Magda Wierzycka, CEO of Cape Town-based Sygnia Asset Management, said in an e-mailed response to questions.

It was a 17% discount to the shares’ closing price on that day in June 2002, and a 64% discount to JD Group’s price the day the transfer to an investment vehicle called Capstone 556 (Pty) Ltd and Daun & Cie was completed, according to Bloomberg calculations.

Capstone had Lategan on its board and its funding was overseen by Jooste.

FirstRand said it was not under any obligation to disclose the price and that it had acted to save Profurn from collapse. The bank said it was not involved in the later sale of JD Group shares by Jooste and Daun.

Capstone and Daun & Cie each sold 14-million JD Group shares at R42.50 apiece, generating a profit of R396.6m for each company. Capstone then sold its remaining 3.5-million JD Group shares to Mayfair Speculators, where Jooste was the sole director, for R45 a share.

Profit

Capstone’s two sets of share sales led to a R504.5m profit and, when added to Daun & Cie’s takings, the total profit for the companies linked to Daun and Jooste was R901m.

As with the entities involved in the car dealership properties and the forestry assets, Capstone was held through complicated structures that linked back to Fihag Finance Handels, the Swiss-based company that was initially controlled by Steinhoff founder Bruno Steinhoff, according to company filings. Fihag was also a major shareholder in Steinhoff International.

While JD Group was taken over by Steinhoff in 2015, Capstone still exists and Stefan Potgieter, Jooste’s son-in-law, is now its only director, company filings show.

Fihag did not respond to requests for comment while Potgieter said he was not party to the transactions.

Bloomberg