Steinhoff has cost investors almost R300 billion

Concerns around financial irregularities at Steinhoff International have had a material impact on investors on the JSE. It’s not only Steinhoff’s share price that has suffered, but the share prices of a number of related companies as well.

The most obvious is its subsidiary Steinhoff Africa Retail (Star). Investors have sold the share down as it appears that Star has guaranteed at least a portion of Steinhoff’s debt. The extent of these guarantees is however unclear.

The impact has also spread to Shoprite, of which Steinhoff chairman Christo Wiese owns around 18.0%. Just days before Markus Jooste resigned as Steinhoff CEO, Star had announced that it had exercised call options to acquire a 23.1% economic stake and 50.6% voting control of Shoprite. The deal remains subject to regulatory approval.

The Wiese connection appeared to put pressure on Brait, Stellar Capital, Tradehold and Invicta Holdings as well. He is closely associated with all of these companies.

KAP Industrial and PSG Group have also been hit. Steinhoff is a major shareholder in both entities and if it needs liquidity it is likely that it will dispose of some, or all, of these interests. Some investors have therefore decided to sell their holdings in anticipation that they will be able to get in at a lower price at some point in the future.

Finally, the banks have also come under pressure due to concerns over their exposure to Steinhoff, through loans, corporate debt and derivatives. Investec has been the primary loser after acknowledging that it had a range of exposures to Steinhoff and Steinhoff Africa. These concerns have, however, spread to the sector as a whole.

While it would be impossible to say that all of the selling in every one of these stocks has been only due to what is happening at Steinhoff, it is nevertheless fair to assume that it is the major catalyst. The table below shows how their share prices have fallen since the close of trade on December 1, which was the last day before the first indications of serious problems at Steinhoff emerged.

Once again it’s important to note that not all of these declines are necessarily directly due to Steinhoff. It has, however, played a major role.

The total value wiped out of the market in just these 14 counters in seven days of trade is R295.4 billion. In context, that is about 8% of South Africa’s GDP.

Apart from the overall value destruction, what stands out is that Steinhoff International now has a market cap that is significantly lower than Shoprite’s, and smaller even than Star’s. Compared to other retailers on the market, it is now a smaller company than Mr Price, or Woolworths.

Just ten days ago, it was five times larger than either of them.

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