Pepkor comes through for its indebted executives
The retailer has met obligations of more than half a billion rand for executives that borrowed money to buy shares in Steinhoff
Pepkor, SA’s largest non-grocery retailer, has met all obligations relating to the debts of its executives that borrowed money to buy Pepkor shares that were later exchanged for Steinhoff shares before news of former Steinhoff International CEO Markus Jooste’s departure collapsed the Steinhoff share price, along with the collateral of banks involved in the deal.
The admission that a bridge loan facility equivalent to R519m was advanced by Pepkor to Business Venture Investments No. 1499 (BVI) to settle a loan provided by Rand Merchant Bank (RMB), a division of FirstRand Bank, was made in the notes accompanying the financial statement of Steinhoff Investment Holdings published on Friday.
Steinhoff Investment Holdings is a wholly owned subsidiary of the Frankfurt and JSE-listed Steinhoff International Holdings. It indirectly holds a 68% stake in Pepkor Holdings, which owns and operates well-known retail brands such as Pep, Ackermans and Bradlows.
The shareholders of BVI comprise a number of current and former Pepkor executives, and which Business Day understands includes Pepkor CEO Leon Lourens, who exchanged shares in Pepkor for Steinhoff when the latter acquired the former in 2015 in what was one of the country’s largest corporate transactions.
In addition to exchanging shares, the executives borrowed money to increase their shareholding in the global furniture retailer, with the shares serving as collateral for a loan advanced by RMB.
Following news of Jooste’s sudden departure and revelations of accounting irregularities at Steinhoff in December 2017, the share price collapsed in the ensuing days and weeks, losing approximately 95% of its value over the course of that month.
This meant that the collateral for the BVI loan precipitously declined and the emergence of Steinhoff’s true financial position meant that it was unable to pay dividends — a vital source of cash flow for many Pepkor executives that were using it to service the loan.
While all other shareholders in Steinhoff saw the value of their investment collapse, Pepkor issued a controversial guarantee on behalf of BVI to the lenders, effectively promising to honour any obligation the company and its shareholders had to the banks, something it has now done.
Many commentators questioned whether the guarantee was issued at arms-length and whether there was sufficient disclosure. The company is yet to firm up how it intends to be repaid.
Notes to the financial statement read: “Pepkor Holdings is in the process of negotiating the issuance of preference shares by BVI to Pepkor Holdings to replace the bridge loan facility advanced during the year. This enabled BVI to settle its debt with RMB.”
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