Jooste accused of 'naked fraud'
Largest shareholder won’t be selling its stake just yet — because there simply isn’t enough information available
Though Steinhoff has shed R207bn (86% of its value) within six weeks, its largest institutional shareholder, Coronation, says it doesn’t plan to ditch its 5.2% stake any time soon.
It’s a risky gambit, since Steinhoff’s banks have withdrawn some of its credit lines, following its December 6 admission of "accounting irregularities". CEO Markus Jooste has resigned and last week Steinhoff admitted it would now withdraw its 2015 and 2016 financials — essentially an admission that it duped investors.
Charles de Kock, who heads Coronation’s absolute return funds, says it’s been an upsetting few weeks. "You think back over whether you missed something, but the fact is, if fraud has been involved which has fooled the auditors and others, there’s not much chance you’ll catch anything," he says.
At this point Steinhoff hasn’t spelt out what the "irregularities" were that led auditors Deloitte to refuse to sign off its 2017 financials. But insiders told the Financial Mail that the problem seems to relate to three murky entities in Europe — Campion Capital, Southern View Finance and Genesis.
All three, apparently controlled by people close to Jooste, did murky deals with Steinhoff, which allegedly had the effect of disguising Steinhoff’s liabilities and inflating its revenue.
But Steinhoff hasn’t clarified that this is the issue. In fact, it has said nothing. Jooste has dropped out of sight, Christo Wiese (who quit as chairman amid the scandal) says his lawyers have told him to stay mum and its executives "have been advised not to give interviews", says spokesman Reina de Waal.
It has left investors with no clue how bad things really are, leading to steep swings in the share price – down 34% on a single day before Christmas, up 37.4% another day last week.
Says De Kock: "We’re not in the business of guessing, and since we haven’t seen either the audited results, or restated numbers, we can’t say what the value is. At this point, there just isn’t enough information for anyone to be either selling or buying the shares."
This seems to be a common view. Since December, seven analysts from brokerages including Goldman Sachs, Avior and JPMorgan have "suspended", "withdrawn" or placed their rating of Steinhoff "under review".
Karl Leinberger, Coronation’s chief investment officer, says this shows that the market is in a complete information vacuum.
"We don’t know if it’s worth more or less than the share price right now. But I do think that sort of information is weeks away, rather than months," he says.
Investors who spoke to the Financial Mail are fuming that Steinhoff misled them, or perhaps more accurately, that Jooste misled them.
Some have expressed incredulity that the company seems unwilling to hold other executives accountable.
Last week, Ben le Grange "resigned" as Steinhoff’s chief financial officer to "focus on the preservation and procurement of liquidity" and finish preparing Steinhoff’s financials.
This seems a curious move in light of the fact that as the finance director, Le Grange was responsible for Steinhoff’s accounts — which, it turns out, were riddled with errors.
One analyst, who asked to remain anonymous, described it as "completely and utterly irresponsible for Steinhoff to think it’s still acceptable for Le Grange to be anywhere near Steinhoff’s operations. His job was to make sure accurate financials were published — he failed."
"It’s ludicrous — either dishonest, or stupid," says a portfolio manager at another large asset manager. "Le Grange must have zero credibility with the banks at this point."
But RECM chairman Piet Viljoen says the first priority for bankers will be ensuring there’s someone there who knows what’s going on.
"Consequences will come later. But at this point, it’s important for shareholders, customers and employees that this thing is carefully managed so Steinhoff doesn’t fall over," he says.
Waseem Thokan, governance analyst at Legae Securities, says Le Grange’s continued tenure at Steinhoff underscores his long-standing concerns over the way it was run.
In a report last June, Legae flagged Steinhoff’s poor governance, rating it on the lowest rung of all the retailers.
In particular, Steinhoff scored negative rankings for "moral DNA of the organisation" and "board composition and effectiveness".
"Steinhoff appears focused on building a collection of businesses to exploit market niches and operational opportunities around the world, with little evidence of its activities being founded on a strong moral foundation," it said.
Top-ranked retailers in that Legae study were The Foschini Group (TFG), Shoprite and Woolworths.
Besides Le Grange, Steinhoff faces similar questions over why it appointed Danie van der Merwe as acting CEO — a man known to have been Jooste’s trusted lieutenant for years.
And if banking group Absa is right, Jooste is almost the last person you could trust.
In December, Absa launched legal action against Mayfair Speculators, which was run by Jooste and his son-in-law Stefan Potgieter, to recover R226m it had lent to the company.
The court papers are the most direct attack yet on Jooste’s integrity. In an affidavit, Absa’s manager for business support Hester van Niekerk accuses him of "nothing less than a naked fraud".
Absa argues that Jooste’s company took out huge loans (in all, R1.25bn — including R800m from Sanlam and R250m from Investec) backed by his shares in Steinhoff, then shifted that money out to another company, Mayfair Holdings, by declaring a R1.5bn dividend in August last year.
"It is overwhelmingly probable that Jooste and his son-in-law Potgieter were aware that the financial irregularities and fraudulent transactions in Steinhoff would be uncovered in the near future, and that when those facts were made public, the value of the Steinhoff shares would collapse," she says.
Shifting the assets from Mayfair Speculators to Mayfair Holdings was "nothing less than a fraud", Absa argued, designed to benefit Jooste and his family, and prevent the banks from recovering what they were owed.
At this point, it seems clear that Mayfair Speculators has nothing.
On December 8, two days after Jooste quit, Absa organised a meeting with Potgieter to demand that their R226m loan be repaid. Potgieter said Mayfair Speculators was insolvent, with liabilities of R1bn and assets of R350m, and was "not able to repay its obligations".
Judge Siraj Desai has postponed the case for a full hearing later this month.
Meanwhile, it seems Jooste is selling some of his assets.
In recent weeks, Mayfair Speculators sold SA’s top racehorse – the seven-year-old Legal Eagle – to businessman Braam van Huysteen, according to Media24. Van Huysteen founded Tekkie Town, a company which was bought by Steinhoff.
This suggests Jooste has withdrawn from the horseracing world, in which he used to be the dominant personality. The National Horseracing Authority (NHA) confirmed in late December that Jooste has "relinquished his racing colours and resigned as a member of the NHA with immediate effect".
While Jooste has been shunned, it remains to be seen what sanctions will be levied against other Steinhoff executives or directors.
One institution that has suspended a number of ethically dubious companies in the past year — including Eskom and KPMG — has been Business Leadership SA. But its CEO, Bonang Mohale, says Steinhoff had never been a member.
Besides questions of accountability, investors are also asking why, with the share price vacillating so sharply, the JSE hasn’t suspended the stock from trading. With Steinhoff saying nothing, traders are causing the stock to behave erratically — which, some believe, suggests some investors have inside information.
John Burke, head of issuer regulation at the JSE, says the exchange has been "continuously engaging" with Steinhoff, and the company says it has "disclosed as much information as it is able to". Its results must be published before the end of January.
"Under the circumstances where Steinhoff has disclosed as much price-sensitive information as it is able to, it would be detrimental to the interest of investors to prevent them from trading [their] shares on the JSE," he says.
Burke adds that if the JSE were to suspend trading when Frankfurt hasn’t (Steinhoff’s primary listing is on Germany’s DAX), it would place local investors at a disadvantage.
Steinhoff has also reportedly been selling assets to ease what it describes as "significant near-term liquidity" problems. Reports indicate that even its 2006 Gulfstream G550 private jet is for sale, and some of its properties in Europe have already been sold.
It’s clear that it’s going to get a lot worse before it gets better.