Christo Wiese, Steinhoff International Holding's largest shareholder and chairman of its supervisory board, has hit back at critics after the group's share price collapsed by 17% this week following news of a probe into accounting fraud.

Steinhoff was criticised on Friday for its response to the market after a report that its CEO, Markus Jooste, and his management team were subjects of a probe into accounting fraud that had flagged concerns about inflated revenue in 2015.

But Wiese said the statement the group issued this week made it clear that the report on the investigation was based on a "misconception" and "rumour mongering", and talk that its reputation was at risk was "drivel".

On Friday, the group's shares partially recovered on the JSE, rising 2.87% to R61.30.

No insights provided

German magazine Manager Magazin reported this week that since 2015 prosecutors in the northern German city of Oldenburg had been looking into whether the retail company's revenue had been inflated.

Andreas Riemann, an equity analyst at Frankfurt-based Commezrbank, said Steinhoff's response was "rather weak because it was just saying they are addressing the allegations of dishonesty".

"You've got investors in the US and the UK asking questions, and investors in Germany are more scared about the things that are going on. But also because one of the local prosecutors actually confirmed that they are under investigation."

According to Bloomberg, about 10.45% of Steinhoff's shareholders are from the US, while the UK accounts for 3.8%.

Riemann said it would have been more settling if Steinhoff had rejected the claims, but "they just said parts of the investigation are not correct. They didn't provide any insight on the topics mentioned in the article. You normally have companies that respond better by providing proof of argument".

Tax investigation

But Wiese said: "[Our] statement makes it very clear that the base of all this rumour-mongering is the 2015 issue, which was fully disclosed and from time to time referred to in statements as to where we are on that issue." In December 2015, Steinhoff said in a SENS statement in connection with tax investigations that the Westerstede offices of Steinhoff Europe Group Services, a German subsidiary of Steinhoff International, had been searched the month before.

How do you respond to drivel like that? It's just crazy
Christo Wiese

The company said at the time: "Authorities were reviewing the balance-sheet treatment of certain transactions ... The investigation focuses on adherence to an arm's- length valuation and proper accounting pursuant to German GAAP [generally accepted accounting principles]."

According to section 331 of the German Commercial Code (Handelsgesetzbuch) if members of the managing board or the board of supervisors misrepresent or conceal the state of affairs of a company, are punishable by up to three years of imprisonment or a fine.

The group again updated the market when it reported its results for the year to June last year, saying "the group is confident that the matter will be resolved amicably".

On Thursday, the group said it had "engaged constructively with the authorities to find a solution. No further investigations have been initiated nor any searches conducted as alleged in the article."

Reputation at risk

Wiese said on Friday: "People who suggest that the company has not been forthcoming are simply not well informed." In response to claims that the company's reputation may be at risk, he said "it's absolute drivel. How does a company protect itself against this sort of scurrilous innuendo and half-truths?"

The magazine article also claimed that Jooste was spending less time in Germany. But Wiese said: "He and I spent a weekend in Germany 10 days ago. He is leaving for Germany tonight. He spends half his life in Germany. How do you respond to drivel like that? It's just crazy."

Steinhoff is the second-largest furniture retailer in the world after Ikea, having grown rapidly over the past few years.

Charles Allen, a senior retail analyst at London-based Bloomberg Intelligence, said for a group that had been so acquisitive, it was difficult to understand what the underlying growth was. This uncertainty would be magnified by issues with its accounting.

"The implication that any suggestion with accounting may not be absolutely perfect brings you closer to the idea that the organic growth may not be organic growth," he said.

But Wiese said the group would carry on as it had been. "We are not doing panic [or having] a knee-jerk reaction. We are announcing the results [on Thursday], we have a board meeting on Tuesday and we are going ahead with the [Steinhoff Africa Retail] listing, so we will be talking to people quite consistently over the next month or two."

Jooste was not available for comment.

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