Pepkor to end funding arrangement with Jooste-linked Fulcrum
Retail group Pepkor, formerly known as Steinhoff Africa Retail, is putting further distance between itself and its scandal-rocked controlling company, Steinhoff International.
Pepkor is scrapping a controversial funding arrangement it had with Fulcrum, a company alleged to have close ties with former Steinhoff CEO Markus Jooste. Former Steinhoff chair Christo Wiese is involved with Fulcrum through a preference share investment in one of its subsidiaries.
Pepkor said in May that Steinhoff is investigating its relationship with Fulcrum.
Friday’s announcement came just weeks before audit firm PwC finalises a report into “accounting irregularities” flagged by Steinhoff’s board in December 2017. PwC’s investigation is expected to uncover details of transactions with related parties.
Pepkor, which was a wholly owned subsidiary of Steinhoff until it was listed on the JSE as Steinhoff Africa Retail in September 2017, is due to release full-year results on Monday. Earnings are expected to be down by as much as 42%.
The proposed transaction with Fulcrum will unwind a deal put in place in 2016 to take Pepkor’s loss-making unsecured lending business, JD Consumer Finance, off the Steinhoff balance sheet.
The 2016 transaction, with what now appears to have been a related party, was designed to make the Steinhoff balance sheet look stronger than it actually was.
JD Consumer Finance provided funding for customers of furniture retailer JD Group, which became part of Steinhoff in 2011. By 2014, JD Consumer Finance’s loan book of R10bn had a potentially crippling R5.2bn of bad debts.
When nothing came of a 2014 proposal to sell JD Consumer Finance to French bank BNP Paribas, Jooste announced in 2016 that Fulcrum was buying JD Financial Services.
Since December 2017 it has emerged that Fulcrum was owned by Swiss company Campion Capital, which has close ties to Jooste.
In a statement Pepkor told shareholders the ability of Fulcrum subsidiary Century Capital (Cencap) to continue funding financial services to Pepkor customers was uncertain.
Pepkor will only be taking over the funding of new loans, which means Steinhoff will be left with a poorly performing JD debtors’ book.
Pepkor also said it was terminating the Cencap agreement and taking over the sale of insurance products that is done under Fulcrum-owned brands.
Independent retail analyst Syd Vianello said it looked like a good deal for Pepkor, which had a sufficiently strong cash flow to fund its own book.