First to be sold were PSG and KAP, with Star next in line — though this could produce a surprise reverse-twist
Steinhoff, the house of cards built by disgraced former CEO Markus Jooste, is being dismantled piece by piece.
It’s been a case of easy pickings of its listed assets: first came PSG, now being followed by KAP, Steinhoff’s SA industrial arm.
With KAP, Steinhoff’s first move has been reduction of its stake from 42.7% to 25.92% through a share placement grossing R3.67bn.
Prior to the placement, KAP had already moved to distance itself from Steinhoff by terminating a mutual corporate services agreement and exiting rental space in Steinhoff’s Stellenbosch head office.
Daniel Isaacs, an equity analyst at 36One Asset Management, believes Steinhoff’s remaining stake in KAP will be sold.
Sale of the entire stake in one go could have forced Steinhoff to accept a bigger discount to KAP’S trading price, Isaacs says.
Steinhoff’s sale was at a small 4.1% to KAP’S closing price on March 12, the day the private placing was announced. The placing, notes Steinhoff in a release, was “multiple times oversubscribed”.
Steinhoff’s sale of its PSG stake has followed a similar pattern. The first sale, in which it cut its stake from 25.5% to 16%, came on December 20 and was followed on January 22 by a further reduction to 2.5%.
The sales realised a gross R11.8bn.
Steinhoff’s sale of its KAP stake means turning its back on one of SA’S best-run industrial groups. KAP was greatly enlarged in April 2012 when Steinhoff reverse-listed its SA industrial assets into KAP in an R8.9bn deal and has gone on to perform exceptionally well.
Measured to its December interim results KAP has, over the past five years, generated average annual headline EPS growth of 15% with a high degree of consistency.
Of KAP CEO Gary Chaplin, Isaacs says: “He is one of the best CEOS out there. He is a real hands-on operator.”
Chaplin is in charge of a highly diversified group. The R23bn annual revenue KAP’S operations include logistics unit Unitrans, PET plastics producer Hosaf, high-density polyethylene producer Safripol, vehicle component producer Feltex and wood-products producer PG Bison. All hold dominant positions in their sectors.
Chaplin is confident that KAP will continue to perform robustly. “Our big investments in capacity and efficiency over the past five years are now paying off,” he says.
With the sale of PSG and KAP, Steinhoff — in its quest for desperately needed cash — will be relinquishing two of the brightest jewels in its asset crown. But the combined R15.5bn that the sales of PSG and KAP have so far realised is a drop in Steinhoff’s ocean of debt.
In a recent presentation to banks, Steinhoff revealed that as at December 14 total debt stood at €10.7bn (R158bn).
No wonder Moody’s slashed Steinhoff’s rating nine notches from investment grade to its third-lowest rating, a super-junk Caa1.
The really big problem lies in Steinhoff’s European businesses. They are weighed down by debt of €8.547bn, €1.54bn of which is due for repayment in 2018.
It remains to be seen how Steinhoff will meet its 2018 repayments. “Though their most recently published balance sheet [to March 2017] reflected a big cash holding [€3.1bn] we do not know if the figure can be trusted,” says Nadim Mohamed of First Avenue Investments.
With Steinhoff’s access to trade credit severely restricted, it is not known how much of its available cash has had to be used as working capital.
What is known is that the market is at its most nervous since Jooste’s resignation and Pwc’s appointment, on December 6, to probe accounting irregularities.
Steinhoff’s share price is now trading at a new low, 90% down from its December 5 level.
Steinhoff will have to continue offloading assets, according to Isaacs. “Star [Steinhoff Africa Retail] will be next,” he predicts.
Steinhoff has a 78.3% stake, worth around R60bn [€4bn], in Star — which has the 3,644store Pepkor SA as its core asset and generates annual revenue of about R60bn.
But any sale of even a portion of Star is likely to have to wait until PWC releases the findings of its probe. Though Star received a clean audit from Deloitte, uncertainty surrounds the possible inclusion on Star’s balance sheet of lossmaking, off-balance-sheet entities JD Consumer Finance and Capfin.
Isaacs puts forward another potential move by Steinhoff: Star could buy Pepkor Europe. If this happened it would be a big deal. Pepkor Europe has more than 1,200 stores in 10 East European countries and generated annualised revenue of €1.4bn (R20.6bn) in the three months to December.
Whatever transpires, Mohamed believes Steinhoff’s longer-term fate is sealed.
“They will strip the business,” he says. “One can only wonder what will be left in the end.”
Our big investments in capacity and efficiency over the past five years are now paying off Gary Chaplin
www.businesslive.co.za/fm/...ff-battling-in-an-ocean-of-debt/