Multinational retailer Steinhoff, whose long-term debt exceeds €9.5bn (R161bn), says ongoing repayment negotiations are complex as many lenders are involved, and it faces one more legal battle.
In a webinar that was cut short by technical problems on Friday, the company updated the market about its debt pile that exceeds its asset value.
Steinhoff, which already pays a high, 10% interest on its debt, has wanted to restructure what it owes at lower interest rates, but is now facing an environment in which rates are rising globally.
CEO Louis du Preez said their interest rate is “still probably [an] average of about 10%. And we all know what’s happening to interest rates in the world. There’s a lot of uncertainty.”
The group’s share price lost more than 90% of its value in 2017 in the wake of fraud, but it has survived against the odds when most firms facing similar revelations such as Enron have collapsed.
In February, Steinhoff finalised an unprecedented R24bn global settlement after facing lawsuits to the value of more than R184bn by thousands of SA and European shareholders who said they had been defrauded when they bought shares before 2017.
Steinhoff’s next step to stabilise the company is to renegotiate debt terms.
It has also increased the finances for remaining litigation, adding €100m to an existing €100m that was set aside for a historical matter. It first disclosed this in its half-year report. Du Preez, who brokered the landmark settlement that involved multiple lawsuits and two years of negotiations, did not disclose what the case was about in the call.
Mutual ground
“We are engaging with the parties to try to reach a settlement. But it’s early stages,” he said.
“So for the time being the litigation is still proceeding, but parties have to reach out to one another to see if we can find some mutual ground.”
The negotiations, while in the early stages, relate to an old lawsuit between Steinhoff’s former CEO, Markus Jooste, and his former European business partner, Austrian Andreas Seifert. The pair had a partnership from 2007 until they fell out in 2014. Some of the disagreement resulted from their joint purchase of French furniture firm Conforama.
On Friday, Du Preez faced many questions from some of the 360 analysts on the call about the debt restructuring but gave few details other than to say renegotiations are extremely complex. More than 100 funds are holding the debt, he said.
All the funds have unique interests. “And at times, it might well be that they are competing with each other. So all that makes for a ... complex process.”
Steinhoff has previously said it wants to list its 50% stake in US-based Mattress Firm to raise money for debt, but Du Preez said market conditions were not right. It could further sell down more of its 79% stake in Warsaw-listed Pepco but has put these plans on hold as stock markets are depressed globally due to rising inflation and interest rates, as well as recession fears.
Asked if lenders would take a haircut, meaning settling for a reduced amount from what is actually owed, Du Preez said it is part of ongoing discussions, adding that they are prioritising the group’s stability.
Steinhoff, which for years paid a low tax rate, has said in previous annual reports that regulators are investigating the accuracy of its tax payments before 2017.
It is unclear what fines Steinhoff could face, but it has shown an ability to negotiate penalties. It has just been fined €11.2m for late financial reporting by German regulator BaFin but the fine covers many infractions from before 2017. It is able to repay the penalty in three tranches over two years.
Du Preez said they are co-operating with tax investigations and have set aside capital for any potential payments.
“We are assisting in those investigations ... [and] believe that in our accounts we’ve adequately provided for all of them.”
Correction: August 1 2022
In an earlier version of this story, Business Day referred to the litigation as new. However, while the current negotiations are new, the issue is historical.
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