Steinhoff’s legal woes leave little for those holding stock
Steinhoff International Holdings may have about €15bn (R255.1bn) of assets and stakes in profitable companies such as Pepkor Holdings, but you will not see that reflected in the share price.
The market capitalisation of the embattled retailer languished at an all-time low of €239m on Tuesday, suggesting shareholders have little chance that the proceeds of any future disposals will feed through to them.
That is even after Steinhoff agreed on a much-delayed debt restructuring plan last week. There is one main reason for that: litigation. Steinhoff has highlighted a lengthy list of lawsuits as a significant threat to its ability to operate as a going concern.
The claims amount to at least €6.2bn and include a R59bn ($3.8bn) demand from former chair Christo Wiese. All relate to the accounting scandal that engulfed the owner of Conforama and Poundland in late 2017, which left a number of individuals and companies out of pocket and caused the share price to collapse.
“The problem is the litigation hanging over Steinhoff – it is just astronomical,” Cratos Capital analyst Ron Klipin said. Even if the company is able to settle the claims favourably, “there’s still the time attached to these claims — it can take the next three, five, or even 10 years,” he said.
In April, Steinhoff called for potential claimants to come forward, and plans to settle all demands as quickly as possible, CEO Louis du Preez told investors last week.
Any potential payouts have not yet been provided for as the company is still assessing their validity. Steinhoff has also initiated litigation of its own, including against former CEO Markus Jooste and an entity called Top Global.
Lawsuits replaced debt as Steinhoff’s most pressing concern after the retailer struck a deal with creditors to skip principal and interest payments on about €9bn of debt through 2021. Even so, the borrowings will still eventually need to be repaid, and asset disposals are expected.
The debt load “needs a combination of repayment from further asset sales and restructuring from a debt-to-equity swap”, said Mark Hodgson, an independent Cape Town-based retail analyst. But for the swap to work, the litigation uncertainty needs to be largely resolved, he said.
“It’s unclear how much there will be left for shareholders, between the excessive debt situation and the legal fees,” Hodgson said.