Picture: BLOOMBERG/DWAYNE SENIOR
Picture: BLOOMBERG/DWAYNE SENIOR

It will take a cursory glance at Steinhoff’s latest annual report to see that legal claims worth at least R170bn — from everyone from former business partners to shareholders, including once one of its biggest, former chair Christo Wiese — are not going to be a pot of gold.

In the space of half a century, Steinhoff was propelled to the upper echelons of the SA and European retail industry with operations straddling four continents and a market capitalisation of more than R200bn before a R100bn-plus fraud triggered an astonishing turnaround of fortunes.  

With shareholder equity all but wiped out, former business partners, some of whom sold their businesses in exchange for shares in Steinhoff, and shareholders have launched multiple litigation claims against the company on grounds that they were duped into buying worthless stock by the misleading and false information.  

At R59bn, Wiese’s claim is by far the largest. In an attempt to have all his assets under one roof, Wiese sold Pepkor, a company he was instrumental in building into one of Africa’s biggest clothing retailers, to Steinhoff in 2014 — in a deal that drew criticism as the clothing retailer was an uncharted territory for Steinhoff, best known for its furniture outlets.  

It could have been worse for Wiese. Months before Markus Jooste resigned as Steinhoff CEO after the company revealed holes in its balance sheet that later turned out to be SA’s biggest corporate scandal, Wiese had engineered a deal that would have seen a Steinhoff-Shoprite tie-up. Luckily,  Shoprite investors turned down the deal as having little strategic and commercial merit.    

Last week’s annual report showed what Wiese already knew: Steinhoff’s balance sheet is too weak to pay even 10% of the claims, which include a demand worth almost R12bn from Lancaster — an investment firm that used a loan advanced by the government’s pension fund asset manager, the Public Investment Corporation, to buy into Steinhoff.  

The report covering the 12 months to the end of March showed that the value of Steinhoff assets was €14.6bn, less than half the value of the fraud-riddled figure reported in 2016 of €32.2bn before being restated to roughly €16bn.

Add a hefty €9.6bn (R185bn) debt pile to the litigation claims,  for which there’s no money to set aside (Steinhoff has instead set up a team to find some kind of settlement), it will truly become a frantic scramble to grab assets that include its local division Pepkor, Conforama in Europe and Mattress Firm in the US.  

For now, Steinhoff has some breathing room from creditors to sort out its balance sheet after striking a deal a year ago with them to hold off any debt claims until 2021. But in exchange for throwing it a lifeline and removing an imminent threat of a default, creditors have a say on which assets should be sold.    

If creditors do not tip Steinhoff into bankruptcy when the debt standstill ends, it is likely that they would swap their debt into equity — a  deal similar to the one at Edcon in 2016 when private equity group Bain Capital gave up equity to lenders to keep the retailer afloat. In that likely scenario, it is not hard to imagine that they would push back against any legal settlement deal that threatens to erode what is left of the underlying value of the company.     

The legal claims could not have come at a worst time. They coincide with the Covid-19 rolling economic destruction that has eaten up value at the operational level and undermined the commercial logic of selling assets. Steinhoff annual losses widened 50% during the period to €1.8bn.

For businesses that produce such dismal results, selling them now, when economists are forecasting the worst economic downturn in generations, would mean buyers get them for a steal while creditors and aggrieved shareholders walk away with very little.  

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