Creating distance between Star and Steinhoff

As promised at the Steinhoff AGM in March, the executive directors of Steinhoff Africa Retail (Star) have raised R18 billion in funding from South African financial institutions.

The funding has been used to repay shareholder funding of R16 billion which was provided by Steinhoff AG, as part of Star’s listing in September 2017.

This means that Star is now independently financed with direct financing facilities with the banks. All third party guarantees related to the financing of the shareholder funding have been cancelled. In the process, the directors of Star have put a large measure of distance between themselves and the beleaguered retailer.

The additional R2 billion raised – over and above what is required to settle the Steinhoff shareholder funding – will be used to fund Star’s growth aspirations.

“Star [which owns Pep, Ackermans and more recently Tekkie Town] has an established track record of providing value to its customers,” says Leon Lourens, Star CEO. “The refinancing provides a platform from which we can grow our business to its full potential. We appreciate the confidence the banks have placed in us in this regard.”

Financing the new facilities

Of the R18 billion raised, R12 billion will be financed with between three- and five-year repayment terms at interest rates that are in line with current rates.

The remaining R6 billion will be funded through preference shares issued to South African financial institutions. The preference shares are issued to facilitate the redemption of Steinhoff’s preference shares and to enable Star’s release from guarantees applicable to these.

The market seems to like these steps. “The refinancing is clearly another positive move for Star to reduce Steinhoff’s influence and related risks,” says Peter Takaendesa, portfolio manager at Mergence Investment Managers. “Our understanding is that the new funding scheme costs about the same as the previous funding provided by Steinhoff so Star has not been financially disadvantaged by the refinancing.”

Market is cautiously optimistic

However, it is likely to take much longer for Star to be completely free from Steinhoff-related problems given Steinhoff remains the controlling shareholder of Star, with a 71% shareholding. “While most of the cross-guarantees have disappeared, a few legal challenges remain in the form of claims by the former owners of Pepkor and Tekkie Town,” says Drikus Combrink, principal partner at Capicraft Investment Management. “Star may have to settle these disputes. If it is proven that there was fraud or misrepresentation of value, then all bets are off the table.”

Other measures to put distance between itself and Steinhoff included securing the departure of CEO Ben La Grange, who was once Steinhoff’s CFO; diluting the Steinhoff influence at board level; securing independent financing and settling debt owed to Steinhoff.

Most recently, on Wednesday, Star announced that its external auditor Deloitte had stepped down, to be replaced immediately by PwC.

“After careful consideration and by mutual agreement with Star management and its audit committee, Deloitte has decided to resign as the external auditor of Star. A significant component of the Star group was already audited by PwC and using two auditors simultaneously caused an inefficient duplication of efforts,” says Lourens.

This all follows the implosion of Steinhoff, Star’s majority shareholder in December, following news of accounting irregularities and the subsequent resignation of CEO Markus Jooste. The companies were intimately entwined, despite the fact that Steinhoff had unbundled Star from its operations and listed it on the JSE in September.

Star will release its interim results on May 29. Its directors expressed confidence at the AGM that ‘no bugs would be found in the mattress’. “Our results [for the year to September 2017] were audited by two sets of auditors: PwC, which audits Pepkor, and Deloitte, which audits Steinhoff and Star Corporation,” said Johann Cilliers, chair of the audit committee, at the time.

“Steinhoff and the African business were run very separately, and Star’s assets were not in the stable for long enough to have had any damage inflicted on them,” says Combrink. “We had followed Pep since it was bought by Brait a decade ago.”

The share price ended the day slightly up 2.69% at R17.58.

– Author: Sasha Planting

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