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This transcript is a translation from the unique interview, which was carried out in Afrikaans and aired on RSG Geldsake, right here.
RYK VAN NIEKERK: The Steinhoff share value slumped as a lot as 44% right now after the group introduced that its financiers will take management of the corporate by means of a restructuring of the group’s debt.
The firm right now [December 15, 2022] introduced that it had reached an settlement with the financiers to defer the debt due for compensation in 2023, to 2026. In phrases of the settlement they’d obtain an 80% stake in Steinhoff.
Should all shareholders nevertheless not approve the transaction, they’d retain no stake. The financiers can even take over your entire vote and Steinhoff’s Frankfurt and Johannesburg listings might be terminated. Steinhoff’s complete debt burden quantities to some €10 billion.
Jean Pierre Verster of Protea Capital Management is on the road. Jean Pierre, a heat welcome to the programme. What on earth is this all about?
JEAN PIERRE VERSTER: Good night, Ryk. Yes, it could sound sophisticated however, if I’ll put it merely, I’d say that strange Steinhoff shareholders are out of time. What I imply by that is that we all know that Steinhoff has a substantial amount of debt, virtually €10 billion, some R184 billion, and the property they’ve – comprising mainly Pepco and Pepkor – these shareholders would have hoped to have seen a steep value rise within the two years, subsequently [making] these property price greater than the indebtedness.
That has not occurred, Ryk.
With regard to the debt that was payable by end-June 2023, Steinhoff needed to do one thing to defer cost, there being no cash to settle it by end-June 2023. The collectors subsequently maintain all of the aces in these negotiations, and have set brief-time period punitive phrases, resulting in strange shareholders, in the event that they approve the transaction, retaining solely a 20% voting and shareholder proper in Steinhoff. If they don’t agree they lose every little thing, Ryk. Then they may don’t have any shareholding in Steinhoff as a result of Steinhoff has a lot debt and on this scenario the collectors maintain all of the playing cards.
RYK VAN NIEKERK: Does this imply that, for all sensible functions, Steinhoff is bancrupt?
JEAN PIERRE VERSTER: Correct. Because the Pepco and Pepkor share costs haven’t risen sharply previously 12 months or so, the asset facet of Steinhoff’s stability sheet is smaller than the legal responsibility facet. So technically talking Steinhoff is bancrupt.
There had been a hope that this was not the case, that the asset costs would enhance. Owing to Covid and embattled share markets, that didn’t occur and that is why Steinhoff shareholders are in such a tortured scenario and have to decide on between dropping completely every little thing or retaining a mere 20% share in an organization that won’t even be listed ought to this transaction undergo.
So it’s a really troublesome selection, one between nothing or one thing, and the expectation is that shareholders will reasonably select one thing ought to the voting occur.
RYK VAN NIEKERK: Earlier you stated that Pepkor and Pepco are Steinhoff’s greatest property and that in addition they personal the bulk in Mattress Firm within the US and Greenlit Brands in Australia. What does this imply for these corporations – particularly for Pepkor right here in South Africa, which is main participant in our retail trade?
JEAN PIERRE VERSTER: I believe it’s essential to notice that the underlying corporations which have a Steinhoff shareholding are separate corporations with their very own administration groups – and within the case of Pepkor in South Africa and Pepco in Poland, these corporations are doing very properly. Mattress Firm is additionally a separate firm, which can probably quickly record individually within the US, and Greenlit Brands in Australia has for a while been attempting to promote Steinhoff with out success.
But these corporations will proceed working. There is no danger to them.
All that may occur is that they may in some unspecified time in the future get new shareholders, whereas till now it has been Steinhoff itself. This will most likely lead to a restructuring of Steinhoff itself, which may lead to these Steinhoff collectors changing into direct shareholders in a few of these underlying corporations, together with Pepkor.
RYK VAN NIEKERK: Why would Steinhoff comply with this route and never merely liquidate?
JEAN PIERRE VERSTER: Liquidation is a messy course of, Ryk, and normally in a liquidation everybody loses. So one would reasonably have an orderly course of than a liquidation. In a liquidation shareholders typically lose every little thing anyway. So what one can virtually see right here is an orderly- or a managed liquidation, with the collectors who see sufficient worth within the firm that it is not a scenario the place all Steinhoff operations ought to stop, however that the collectors would reasonably get their fingers on the shareholding that Steinhoff has in very wholesome underlying corporations reminiscent of Pepco and Pepkor.
So in a method will probably be a liquidation of Steinhoff. There is even an opportunity that the Steinhoff NV entity, which is registered in The Netherlands, will stop to exist.
If shareholders maintain a 20% curiosity in a gaggle, that might not essentially be in Steinhoff, however in a brand new firm to be registered some place else.
RYK VAN NIEKERK: How a lot of the €10 billion debt arises from the settlement settlement that Steinhoff reached with shareholders and paid out to those that misplaced cash in Steinhoff’s 2017 implosion?
JEAN PIERRE VERSTER: A small quantity, really, Ryk. The overwhelming majority of the €10 billion is outdated Steinhoff debt, from earlier than the collapse occurred. The authorized settlement in progress entails a smaller quantity, a part of it in Pepkor shares as properly, not every little thing in money. So the overwhelming majority of the debt and thus the explanation for this reorganisation is not the authorized points that Steinhoff endured, however reasonably the debt that Steinhoff collected earlier than their implosion.
RYK VAN NIEKERK: So can one contemplate it Steinhoff’s sundown? The implosion was in 2017, and the corporate continued doing enterprise for 5 years. Is this principally its finish?
JEAN PIERRE VERSTER: Yes, largely so.
It has had a 5-12 months twilight, however the solar is now setting on strange shareholders.
The collectors will on the finish of the day management the property inside Steinhoff; Steinhoff itself as a holding firm will most likely stop to exist, and present Steinhoff shareholders will find yourself with both nothing in that scenario, or after the restructuring will maintain a 20% curiosity in an unlisted holding firm, which someday within the distant future would possibly maintain a bit worth. But there is additionally an opportunity that that holding firm’s shares themselves can even find yourself nugatory in the long run.
RYK VAN NIEKERK: So, if the shareholders now select the 20% possibility by approving the transaction, to whom would they be capable of promote their shares in future?
JEAN PIERRE VERSTER: Shareholders can at the moment promote their Steinhoff shares on the JSE, or promote them in Frankfurt, and that is why we’re seeing shareholders scrambling to promote, and the value dropping sharply. In the long run the mechanism will most likely be a swap transaction the place Steinhoff shareholders will hand over their shares and obtain a 20% share in another entity, receiving different shares. Those shares is not going to be listed – that means that will probably be extraordinarily troublesome to purchase and promote shares in an unlisted enterprise at that stage.
So Steinhoff shareholders now have a really small window of alternative to promote their Steinhoff shares, after which will probably be extraordinarily troublesome to get rid of their shares on this unlisted future holding firm.
RYK VAN NIEKERK: Who would purchase Steinhoff shares now from current shareholders who’re scrambling, as you say, to promote and do away with their shares?
JEAN PIERRE VERSTER: Yes, I’d say ten to at least one it will be speculators who suppose that fairly probably some lengthy-time period worth may stay on this new holding firm; however that is really speculative, Ryk. There is a lot uncertainty and the collectors are so entrenched of their highly effective place that it will be silly for a minority shareholder to be in an unlisted firm – making it a considerably dangerous hypothesis for anybody to purchase a Steinhoff share at this level.
RYK VAN NIEKERK: Jean Pierre, thanks in your time this night. That was Jean Pierre Verster of Protea Capital Management.
