Global banks have billions at risk as Steinhoff scandal deepens

Steinhoff, listed in Frankfurt and Johannesburg, has lost more than 80% of its market value in the three days since the company started a probe into accounting irregularities

US and European banks and creditors, some of whom are meeting with Steinhoff International Holdings NV on Monday, are among creditors with billions in exposure to the global retailer whose asset value has plummeted amid an accounting scandal.
 
Total exposure to lenders and other creditors was almost 18 billion euros ($21 billion) as of the end of March. Long-term debt was 12.1 billion euros and short-term debt 5.87 billion euros, its first-half earnings statement shows. Those are the most recent Steinhoff results available after it indefinitely postponed publishing full-year financials on Wednesday.
 
“The great unknown is the funding of the off-balance-sheet structures, which could spill over into fresh bank liability,” Adrian Saville, chief executive officer of Cannon Asset Managers in Johannesburg, said Friday. The short-term debt could “fall over if the business fails,” he said.
 
Steinhoff, listed in Frankfurt and Johannesburg, has lost more than 80 per cent of its market value in the three days since the company started a probe into accounting irregularities and Chief Executive Officer Markus Jooste resigned. In South Africa, Steinhoff has relationships with Standard Bank Group Ltd., Investec Ltd. and a unit of FirstRand Ltd. Globally some of the lenders include Citigroup Inc., Bank of America Corp., HSBC Holdings Plc and BNP Paribas SA.
 
Steinhoff has scheduled a meeting on Dec 11 with lenders from two of its syndicated facilities, according to three sources familiar with the matter. The meeting is with banks involved in a 2.9 billion euro revolving credit facility and a $4 billion syndicated financing facility for the acquisition of U.S. brand Mattress Firm, the people said.
 
Steinhoff representatives didn’t respond to requests for comment on the meeting or the amount of debt.
 
Wiese’s Relationships
 
Banks also have exposure to Steinhoff through loans provided to Chairman Christo Wiese’s investment vehicles. Last year, the billionaire and largest shareholder of the company pledged 628 million of Steinhoff’s shares in collateral to borrow money from Citigroup, HSBC, Goldman Sachs Group Inc. and Nomura Holdings Inc. That was to participate in a share sale in conjunction with the acquisition of Mattress Firm and Poundland, according to a company statement.
 
It’s unclear whether Wiese has repaid part of those loans since. The value of all shares pledged as collateral is now 365 million euros, down from 2.2 billion euros a month ago.
 
Citigroup, Goldman and Nomura declined to comment on the Wiese loans, and HSBC didn’t immediately respond to a request for comment. Investec didn’t respond to a request for comment on the debt. Standard Bank, Citigroup, BNP, Bank of America and HSBC declined to comment.
 
FirstRand unit Rand Merchant Bank “has banking relationships with Steinhoff and with entities owned by” Wiese, the Johannesburg-based lender said in an emailed response to questions. “We have reviewed our credit exposures to these entities and believe they are adequately secured,” it said, declining to give further details because of client confidentiality.
 
Steinhoff, which owns home-furnishings chain Conforama in France, said on Thursday it was considering boosting liquidity by selling assets worth at least 1 billion euros. It also said one of its African subsidiaries would refinance long-term liabilities amounting to another 1 billion euros, while the possibility of recovering assets for around 6 billion euros was being investigated. All of these measures may help recoup some of the money owing to banks and investors.
 
“Banks usually will also go for three times interest cover, so as long as the underlying cash flows remain stable they can withstand a sharp pullback,” said Patrice Rassou, the head of equities at Sanlam Investment Management in Cape Town. “As long as the banks have the underlying business as security, with the cash flows, and not the share as security, then the risk is reduced.”

Bloomberg