Steinhoff scandal wipes out $12 bn of shareholder value

Shocked Steinhoff shareholders have wiped more than $12 billion off its value since it revealed "accounting irregularities" and parted ways with its chief executive, in a dramatic fall from grace for the South African retailer.

Once a must-have for investors who backed its reinvention as a retail empire including brands such as Mattress Firm and Poundland under veteran CEO Markus Jooste, Steinhoff shares fell by 43 percent on Thursday, compounding the previous day's more than 60 percent fall.

This collapse leaves South African tycoon Christo Wiese, Steinhoff biggest shareholder and chairman, seriously out of pocket, eroding more about $2.8 billion of his net worth.

It also prompted an urgent call by South Africa's Finance Minister Malusi Gigaba for pension fund managers to report back on their exposures to the sudden sell-off, saying that the accounting issue was a "grave concern".

South Africa's Public Investment Corporation (PIC), the retailer's second-largest shareholder, said the allegations against Steinhoff were "serious concerns".

The PIC, which manages civil servants' pension funds, said in a statement it holds around 10 percent of Steinhoff's stock.

The shares closed down 43 percent at 10 rand in Johannesburg and were down more than 40 percent in Frankfurt, where it has had its primary listing since 2015.

Steinhoff has responded by putting 76-year-old Wiese, one of the most respected business leaders in South Africa, in charge for now and calling in PwC to investigate the accounting problems, while also seeking to reassure investors by saying it has enough liquidity to fund its existing operations.

Wiese, who describes himself as a "realist, pragmatist", started his budget clothing retailer Pepkor in the 1960s, in Upington on the southern edges of the Kalahari desert.

He studied law in Stellenbosch, a close-knit town dominated by Afrikaans-speaking whites, but now lives in Clifton, an affluent area of Cape Town overlooking the Atlantic Ocean and is best known for transforming budget grocer Shoprite from just six shops in the 1970s to hundreds of stores across Africa.

SHOPPING SPREE

Wiese and Jooste were instrumental in reinventing Steinhoff, turning it from a modest distributor of furniture made in communist era eastern Europe to a global household goods retailer, vying for market share with the likes of IKEA.

Steinhoff has been on shopping spree since 2011 when it took over French furniture retailer Conforama. Last year's string of acquisitions included Mattress Firm and Poundland, thrusting it firmly on to investors' radar screens.

"Whether Steinhoff's zealous expansion tactics amount to a winning or losing strategy really does depend on the outcome of the investigation," said Erika Sirimanne, Head of Home and Garden Research, Euromonitor International.

Steinhoff has been under investigation for suspected accounting irregularities by the state prosecutor in Oldenburg, Germany since 2015.

Four current and former managers are under suspicion of having overstated revenues at subsidiaries, German prosecutors said this week.

Steinhoff has previously said that move related to whether revenues were booked properly, and whether taxable profit was correctly declared.