According to remarks made by one of Steinhoff’s current directors, Dr Christo Wiese – at the time Steinhoff’s chairman and largest shareholder – asked the company to cover a margin call on his behalf in the wake of the resignation of CEO Markus Jooste and the corresponding collapse in the Steinhoff share price.
Dr Johan van Zyl was recently attending an investor roadshow relating to his position as co-CEO of African Rainbow Capital (ARC), the unlisted parent company of JSE-listed ARC Investments, when he was asked questions relating to his role as a director of Steinhoff, according to people who were present at the closed, intimate lunch. “I think he responded to the questions in the interest of transparency,” said a person who was present. “But what he told us was certainly news and completely unexpected.”
In response to specific questions from the audience according to the people present, Van Zyl indicated that in the days following the resignation of Markus Jooste, he and Dr Steve Booysen, chair of the Steinhoff audit committee, were made aware that Wiese had instructed Steinhoff to pay a margin call one of his nominated investment vehicles had received as a result of the collapse in the Steinhoff share price.
A margin call is a term usually applied to situations where investors borrow money from financial institutions to buy shares. The investor will make a deposit so to speak – in the form of cash, or in Wiese’s instance, shares – that are used as collateral for the lending arrangement. In the case of shares that are deposited, the value of the collateral fluctuates with the share price. If the value falls below a pre-agreed threshold, the lender will contact the borrower (investor) and ask them to “top up” the value of the collateral by depositing cash or more shares. This process is what is referred to as a “margin call.”
As recounted to Moneyweb by our sources – who chose to remain anonymous given there was only a handful of guests present – Van Zyl and Booysen reportedly confronted Wiese about the request and threatened to resign from the board unless the instruction was cancelled or reversed. It appears that Wiese complied with their request.
Ultimately, Wiese stepped down as chairman of the board of Steinhoff on December 15 2017. According to the Sens statement published at the time, Wiese offered to step down “in order to reinforce the independent governance of the company of which he is a major shareholder”.
But Wiese was a forced seller of 98.4 million shares the day before he resigned his Chairmanship, on December 14 2017. The reason provided on the Sens was “Involuntary sale of shares by funders under security arrangements”. This suggests that Wiese had not met the margin calls that were coming his way as a result of the collapse in the share price of Steinhoff.
At least one of Wiese’s lending arrangements with respect to his Steinhoff shares was public knowledge. In exchange for vending Pepkor into Steinhoff in early 2016, Wiese received 609.1 million shares in Steinhoff valued at R57 a share for the 52% stake in Pepkor he directly controlled at the time. (He indirectly controlled another 37% of Pepkor through Brait.)
In September 2016, Wiese added to his shareholding in Steinhoff by acquiring an additional 314 million shares at a price of about €5 a share. This was funded by borrowing €1.6 billion from a consortium of some of the largest banks in the business: Goldman Sachs, JP Morgan, UBS and Bank of America, to name a few.
As collateral for this non-recourse loan (a loan that prevented the banks from attaching any of Wiese’s other assets in the event of a default) he had to pledge 628 million shares in Steinhoff, amounting to two shares for every one bought with the borrowed money.
According to Bloomberg, Wiese sought to negotiate a standstill on the loan on December 11 2017, as the value of his collateral fell deep out of the money.
As can be seen from the graph above, the sum total of the shares Wiese pledged and bought in the lending transaction mentioned above, at some point fell below the value of the €1.6 billion loan (blue line falling through red line) during the course of December 6, according to our calculations and assuming no capital had been repaid up to that point. This meant that Wiese might well have begun receiving margin calls the following day – December 7.
Following the revelations recounted to us in the meeting involving Van Zyl, we approached all parties to ascertain the accuracy thereof. Van Zyl and Booysen declined to comment. African Rainbow Capital declined to comment. Wiese denied asking the company to pay his margin call, and added that “there was no transaction to be reversed”.
Steinhoff provided the following statement:
Steinhoff did not provide any funding to Wiese-related entities in December 2017. Entities within the Steinhoff group concluded commercial agreements in October and November 2017 with Wiese-related entities. These transactions did not follow the normal governance and disclosure processes of the company. Both of the transactions were investigated (under the control of the Independent Committee of the Supervisory Board) and subsequently repayment agreements have been concluded and are currently being implemented.
Given the time the statement was received from Steinhoff on Monday evening, Moneyweb did not have the opportunity to follow up with the company regarding the transactions relating to October and November, but undoubtedly, investors will be eager to know more.