Ann Crotty Writer-at-large

Steinhoff is considering the early redemption of about R7bn worth of medium-term notes in a move analysts say is designed to release it from restrictions on its ability to sell off attractive South African assets.

On Thursday, the company advised holders of all notes outstanding under the Steinhoff Services R15bn domestic medium-term note programme that it was considering an early redemption of the outstanding notes, estimated at R7bn in the local market.

Their value has held up significantly better than that of the Steinhoff International bonds. Earlier this week, the European Central Bank confirmed it had sold its entire holding of Steinhoff International bonds. The bank bought €800m of the bonds in July 2017 when they carried an investment-grade rating. In December the rating was cut to junk.

Steinhoff’s international bonds are trading at €0.20 to €0.30. South African notes are trading at about 80c to 90c. This relative attractiveness reflects their backing by a strong South African balance sheet that includes holdings in PSG, Steinhoff Africa Retail and Investec Private Equity.

One analyst, who preferred not to be named, said the decision to buy back the notes might have been influenced by attached conditions, which prevented the company from disposing of any assets in the event of difficulties. "They’re hamstrung by the terms of the notes and may not be able to undertake the restructuring they think is necessary," said the analyst.

Steinhoff provided no details on how it would fund the early redemption of the notes. It is possible that local banks with an exposure to the group’s international bonds might be willing to back the move in the hope it will improve the recoverability of their international exposure.

Analysts said Thursday’s announcement pointed to the first major move by the company aimed at resolving its near-crippling problems.

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