Steinhoff International Holdings NV bonds extended losses after Moody’s Investors Service slashed the credit rating to junk in the wake of an accounting scandal that’s threatening the survival of the global furniture and clothing retailer.
Moody’s cut its rating by four notches late on Thursday, highlighting “the uncertainties and implications for the company’s liquidity and debt capital structure.” The move comes as South African regulators step up probes that follow a review in Germany, where Steinhoff moved its primary listing two years ago.
The owner of Conforama in France, Mattress Firm in the U.S. and the U.K.’s Poundland said late Tuesday that Chief Executive Officer Markus Jooste had quit after the discovery of accounting irregularities, although Chief Financial Officer Ben La Grange remains in place. The disclosures prompted a dramatic selloff in the company’s shares that has wiped out more than 80 percent of the company’s value this week.
‘No Way Back’
“There’s no way back,” David Shapiro, deputy chairman of Sasfin Wealth in Johannesburg, said in emailed comments on Friday. “The worry is that there are a huge number of operating companies within the stable—if you were a supplier to these businesses would you sell goods on credit? I reckon they should file for Chapter 11 or business rescue and try and salvage what they can.”
Steinhoff has its roots in South Africa and has expanded aggressively around the world with a series of acquisitions, including Mattress Firm and Poundland, and now has 130,000 employees worldwide. It’s hired PwC to examine the financial wrongdoing, postponed the publication of full-year earnings and put non-core assets up for sale.
The retailer’s biggest shareholder is billionaire Chairman Christo Wiese, who has stepped in to take temporary charge of the company. He hasn’t yet responded to requests for comment.
The yield on its 800 million euro ($914 million) bonds due January 2025 rose 129 basis points to 11.05 percent. The shares were highly volatile Friday, trading 7 percent lower at 57.17 euros as of 12:12 p.m. in Frankfurt, after another early plunge of as much as 45 percent.
Taking Steps
Steinhoff said Thursday that it’s considering boosting liquidity by selling assets worth at least 1 billion euros and reviewing the recoverability of non-South African assets worth a further 6 billion euros. The retailer has scheduled a meeting with the lenders of two of its syndicated debt facilities for Monday, according to three people familiar with the matter.
The Pretoria-based Financial Services Board has started an independent probe into possible false and misleading financial reports, while the Public Investment Corp., Steinhoff’s second-largest shareholder and a manager of South African government-worker pension funds, said it’s awaiting information from investigations. The PIC owns a 10 percent stake in Steinhoff, which is now worth $1.1 billion less than two days ago.
South African Finance Minister Malusi Gigaba said he’s “mindful” that many retirement and savings funds will be hurt by the loss in value and has asked the PIC to prepare a report on the extent of the exposure.
“I think it is the end,” Simon Brown, Johannesburg-based chief executive officer of trading company JustOneLap. “The end will be a break up. There are lots of decent businesses that others will want to buy and it’s likely they’ll fetch decent prices, so staff will mostly be fine, except in head office.”
