Finally, some moves at Steinhoff

Last week, the terminal Steinhoff saga had new developments on the corporate and criminal front.

More than five years after the revelation of the accounting scandal in December 2017, which saw the company’s share price collapse and investors suffering massive losses, the company received court approval for a restructuring programme that will see it delisted and which will alter the balance of power between its shareholders and creditors.

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The remaining shareholders – who have somehow held on to the increasingly worthless stock – are now relegated to minor owners in a deal where creditors will own 80% of the remaining entity.

While this is a massive haircut, it comes with a faint hope that something better might materialise in the future.

Something, anything?

In terms of the deal, the 80:20 split will be in place for three years, during which the lenders – who are owed over R215 billion in a company whose current market value is just R256 million – will give the company breathing space by not demanding a repayment of the loans due to them.

During that time, the company hopes to generate enough profitability out of its remaining assets to be able to start paying after the three-year window.

The approval of the deal occurred just a few days before the seminal date of 30 June 2023.

Under the current agreements and concessions that have been initiated since 2017, the creditors of Steinhoff who were owed €9.6 billion (R195 billion) in 2019, had set 30 June 2023 as the date on which all their dues were meant to be settled.

When that agreement was inked, the hope was that through a combination of selling assets and also generating profits from its operations, Steinhoff would have been able to pay off its creditors. A clause in the agreement stated that Steinhoff could approach the creditors and ask for a six-month extension to 31 December 2023.

Since the 2019 deal was implemented, Steinhoff has managed to pay €2.5 billion to the creditors.

Unfortunately, the interest during that period was €2.9 billion and, as a result, the amounts due to the creditors have ballooned to €10.6 billion (R215 billion).

Towards the end of last year, however, as the board of Steinhoff became increasingly sceptical about the possibility of meeting the 30 June 2023 deadline, it tested the waters across its creditors to see if there would be any appetite for the extension.

The pressures of time

The overwhelming consensus was that no extension would be granted, hence the board has been working around the clock to find a solution to the looming deadline.

At the heart of the deliberations was whether the company should be liquidated, which would have been the case if a deal was not reached before the 30 June 2023 deadline.

The issue faced by shareholders and creditors alike is that Steinhoff’s assets currently have a value much less than the amounts due to creditors.

In the scenario analysis Steinhoff presented as part of its motivation for a new deal, it noted that the low estimate indicated that just €5.2 billion could be realised from a liquidation – exactly half of what is due to the creditors.

At a more optimistic estimate, a value of €7 billion was predicted. The reorganisation scenario indicated a range of €6.2 billion to €8.2 billion, which still meant a significant loss for creditors. For shareholders, all scenarios left them with nothing at all. The liquidation option was therefore regarded as the worst possible outcome.

Read: PIC takes around R40m for half its Steinhoff stake and runs

Shareholders were naturally unhappy about being relegated from the primary owners of the company to 20% holders of speculative pieces of hope.

What might have mitigated their pain was the issuing of an arrest warrant against former Steinhoff CEO Markus Jooste by the German authorities.

Criminal accountability for the Steinhoff saga has remained elusive as various countries affected have sought to piece together exactly what happened and how the law can be applied to it all.

The process of piecing together such a complex state of affairs means that the passage of time poses a threat to the viability of prosecutions.

In the German courts, Jooste was initially indicted on six charges related to various corporate shenanigans that had been dissected sufficiently for the criminal conduct to be identified.

When the warrant was issued last week, just two of the charges remained alive due to the statute of limitations.

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Jooste’s absence from the German court, which resulted in the granting of the warrant of arrest, is apparently based on his inability to travel out of South Africa where his litany of cases may be multiples of what the Germans have pieced together.

The problem South Africa has is that its law enforcement agencies seem to be paralysed by a sense of ambition and limited competence.

Since 2017, the National Prosecuting Authority (NPA) has apparently been trying to put together a process that might result in Jooste being finally held accountable – but internal resource limitations and funding constraints made the job a challenge.

When Steinhoff itself offered to make funds available for law enforcement to conduct its own investigations, the hope was that we would finally see a move on that front.

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Surprisingly, not much has been said since then – and those who feel aggrieved by the mere presence of Jooste on the streets of Hermanus in the Western Cape will now hope that the Germans will find a way to drag him to Germany.

Dithering

The irony of this state of affairs is that if law enforcement agencies dither on collaborating with the Germans, the statute of limitations will eventually apply on the remaining charges in Germany.

When that happens, the only remaining instrument of criminal accountability will be the South African legal system.

When one considers how little that has progressed in the past five years, the hope that it will result in any form of substantive accountability is as flimsy as the value of the shares now held by the long-suffering shareholders of the entire business.

Listen to this Moneyweb@Midday podcast with Jeremy Maggs and Zwelakhe Mnguni of Benguela Fund Managers (or read the transcript here):

You can also listen to this podcast on iono.fm here.