Focus shifts to Steinhoff Austria’s tenfold value hike
A R178bn revaluation of an asset held by South African-based Steinhoff Investments could come under scrutiny as PwC continues to investigate the "accounting irregularities" that wiped out R230bn of value at the parent company.
The revalued asset was a 100% shareholding in Steinhoff Finance Holdings, known as Steinhoff Austria, which was valued at R19.99bn in Steinhoff Investments’s 2015 accounts.
During financial 2016, these shares were distributed to parent Steinhoff International at a value of R198bn. The accounts of Steinhoff International and those of Steinhoff Investments provide no explanation for the hefty increase in the value of this asset.
Although Steinhoff Investments treats the R178bn as an operating profit in its 2016 accounts, it did not have to pay any tax on that profit as it was made in terms of section 46 of SA’s income tax act and as such escaped tax liability.
The R178bn revaluation at which the distribution was done and the fact it was distributed to German-listed Steinhoff International raises concern in the context of a group in the midst of a wide-ranging investigation of accounting irregularities.
The result of the transaction is that Steinhoff Austria — which was in Steinhoff Investments’s books as "shares at cost" at R19.99bn in 2015 — appears in Steinhoff International’s company accounts valued as "shares at cost" at R198bn in September 2016. The transaction not only substantially beefed up the balance sheet of Steinhoff International, which was listed on the Frankfurt Stock Exchange in late 2015, but also resulted in a South African-owned asset being externalised.
Chris Logan, CEO of Opportune Investments, who came across the perplexing transaction when following up on this week’s announcement by Steinhoff Investments that it would not be paying dividends to its preference shareholders, said he was relieved not to have been invested in Steinhoff.
"At face value, the implications [of this transaction] are immense, particularly when you consider the whole of Steinhoff is currently only valued at R9bn," Logan said. He said that the distribution of the Steinhoff Austria shares to Steinhoff International also meant the preference shareholders had lost much of the security underpinning their preference share investment.
Despite this loss, it appears that none of the preference shareholders questioned Steinhoff Investments about the transaction.
When asked for comment, Andrew Lapping, chief investment officer at Allan Gray, which holds more than 10% of the Steinhoff Investments preference shares, said he was not close to the situation as one of the other portfolio managers had been dealing with it.
"We have written to Steinhoff and other interested parties regarding the preference shares and the obligations on directors with regard to paying dividends that may prejudice preference shareholders," Lapping said. The Steinhoff Investments preference shares, which are listed on the JSE, were suspended on March 1.
Business Day approached Steve Booysen, who was chairman of the Steinhoff Investments audit committee, and Steinhoff for comment on Monday. They undertook to respond, but by Thursday night no response had been received.
Unlike the financial statements and annual reports produced by Steinhoff International since 2015, the Steinhoff Investments statements do not carry a warning that they can no longer be relied on. The company’s only two executive directors, Piet Ferreira and Stephanus Grobler, were generously remunerated in 2016. Ferreira was paid R28.8m for 2016, up from R22.7m in 2015. Grobler’s remuneration of R27.8m in 2016 and R22.7m in 2015 included payment for legal services he provide to group companies.
Grobler is a partner of Hoffman Attorneys, whose address in Stellenbosch is the same as that of Markus Jooste’s Mayfair Speculators. Jooste is the former Steinhoff CEO.
In addition to Booysen, the other independent directors on the board were Len Konar, Theunis Lategan and Heather Sonn.