London/Johannesburg — Steinhoff International may look like a non-starter for most investors: its former CEO Markus Jooste is under investigation for fraud and the new managers still can’t explain what went wrong. Then there’s the matter of what happened to $5bn in cash. Yet buyers have piled in. Hedge funds now hold most of Steinhoff’s €3.5bn of bonds and more than €1.5bn of bank loans and private debt, according to four people familiar with the situation who asked not to be identified because the matter is private. Their bet: a global retailer with businesses on four continents must have enough assets to offset losses they still don’t know about. What’s more, such fat targets don’t come around often enough for distressed-debt specialists to let Steinhoff go without taking a bite. "If you are a big distressed-debt fund, then you must buy it, even if it’s little more than a blind punt," Louis Gargour, owner of London-based credit fund LNG Capital, who says Steinhoff’s finances were ...

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