The specter of liquidation looms
(Photo: Waldo Swiegers / Bloomberg via Getty Images)
Steinhoff is on track to settle hundreds of investor claims, which will allow the company to focus on vital operational issues. But Tekkie Town’s liquidation hearing remains a risk that has scared investors.
Over the past year, Steinhoff’s share price has risen by more than 250% from 8 cents to 3.05 rand as the supervisory board moves forward in addressing many of the company’s legacy issues. , including the value of net debt. R165 billion and R135 billion in investor claims.
In recent weeks, the supervisory board, backed by CEO Louis du Preez, has moved closer to a deal with the many groups of shareholders who were left with worthless papers when the stock collapsed in December 2017, after it emerged that there might be a hole. in the accounts.
A subsequent investigation by PwC confirmed that the company had recorded fictitious or irregular transactions totaling 6.5 billion euros over a period covering fiscal years 2009 and 2017. This opened the floodgates to litigation, because the shareholders argued that they had invested in the company – or sold their activities to the company – on the basis of fictitious accounts.
The board, backed by a small army of accountants and lawyers, has spent many moons crafting a deal to settle the claims against the company without sinking it into the process.
The comprehensive settlement proposal, technically known as the Section 155 proposal, was presented to investors in February 2021 and was not well received, given that different categories of creditors would receive between 4c and 10c per rand invested. That this was the norm globally did not make the offer any easier to accept and many threatened legal action.
However, in recent weeks, significant progress has been made. As described in this report, Creditors’ crisis: High Court hits Steinhoff hard, the proposal suggested three categories of claimants who would be compensated, according to a differentiated payment structure. This proposal had to be voted on and supported by more than 75% of applicants in each group, namely financial creditors, market purchase applicants (MPCs) and contract applicants. In August, Steinhoff softened the offer to MPCs – investors who bought shares on the stock exchange – adding an additional 3.2 billion rand to the pot in an effort to gain more support. This brought the total settlement offer to around 1.426 billion euros, or 24 billion rand at current rates.
That was enough to push Hamilton, one of the largest investor groups, to cross the line, along with PIC, which manages the Government Employee Pension Fund. On Monday, financial creditors and MPCs voted in favor of the proposal.
The contract claimants meeting, which includes Titan Premier Investments of Christo Wiese and Thibault Square Financial Services, will take place on Thursday after being postponed by the Western Cape High Court to allow Steinhoff to clarify parts of the deal with the contract claimants . . However, the outlook for this vote also looks favorable, after Wiese said Business day Monday that he would support the proposal because many “uncertainties” had now been lifted.
Putting complaints to bed would mark an important moment in the firm’s recent history and allow Du Preez and his team to focus on fundamental operational issues, as well as some inextricable delay – December 2021, due date for the repayment of the debt of 465 million euros.
But before investors got too excited, the Western Cape High Court ruled on Monday that it was within its jurisdiction to hear a separate liquidation claim against Steinhoff.
The claim was filed by former owners of shoe retailer Tekkie Town, who claim they were “tricked” into trading their shares in the shoe retailer for Steinhoff shares.
The news sent the stock price down 22% on Monday as speculative investors panicked.
“This decision on Tekkie Town adds additional short-term risk to Steinhoff,” said Terence Craig, chief investment officer at Element Investment Managers. “The price of this stock may have gone up, but it remains high risk and volatile and is not something we would add to our clients’ portfolios.
“What we don’t know is, does this mark the end of the litigation? Or will someone else come out of the woods? We just don’t know what’s going on in the background.
While settling with investors can be a headache, the next big challenge will be solving the debt conundrum.
“The power belongs to the creditors,” says Hannes van den Berg, co-head of SA Equity & Multi-Asset at Ninety One. “The 10 billion euros in loans from creditors come with a heavy interest bill that needs to be refinanced urgently.”
Despite a significant appreciation in the value of Steinhoff’s underlying assets – in particular Pepkor which has seen its share price increase by 122% over the past year – Pepco’s listing on the Warsaw Stock Exchange, which values this company at 6.4 billion euros (R111- billion dollars), and the mentioned list of Mattress Firm in the United States, Steinhoff does not have the cash available to settle this debt. So the question to watch out for is how the company deals with this.
“After settling the dispute, they could pay off some of the debt using a combination of cash and stocks, and then with a better debt / equity split, refinance the debt balance at better rates. The problem that shareholders need to watch out for is that if they settle the debt with shares, there is a possibility that existing shareholders will be diluted, ”said Van den Berg.
But first, the liquidation hearings on September 9, 14 and 15 will be thorny.
“Liquidation should be a last resort. If the company can settle with shareholders and creditors on commercially viable terms, then you can say there is value there, ”he adds.
“The liquidation will not be in the best interests of equity investors, especially given the effort and time spent in resolving this issue, as well as the value that has been created on the asset side.”
The saga continues. DM / BM