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Pepkor investment scheme nothing more than a Steinhoff investment club

So why did Star issue a guarantee?

Steinhoff Africa Retail (Star) dropped a bombshell on Friday when it announced that it was party to a guarantee of “third party debt” related to a historic Pepkor Holdings management investment scheme “underpinned by the Steinhoff share price”.

Moneyweb understands from sources familiar with the subject that this investment scheme includes a number of current and former Pepkor employees and executives that decided to invest in Steinhoff through an entity called Business Ventures Investments 1499 (Pty) Ltd (BVI). Neither Star nor Steinhoff have any interest in BVI.

According to Steinhoff’s share register at the end of November, BVI held 43.2 million shares in the company before the dramatic events unfolded in early December, and this remained unchanged up until the end of January.

BVI borrowed money to increase its exposure using Steinhoff shares as collateral and with a facility provided by Rand Merchant Bank. This scheme is now deep underwater according to information Moneyweb has been provided with (see table).

Business Ventures Investments pro-forma loan schedule:
Steinhoff share price May 28 2018 R1.43
BVI multiple 3.21
Equals: value of 1 BVI share R4.59
Less: outstanding loan per share at end February R32.37
Equals: amount owed per share R27.78
   
In aggregate: Based on 43.2 million Steinhoff shares  
Amount owed per BVI share R27.78
Divide: BVI multiple 3.21
Equals: amount owed per Steinhoff share R8.65
No of Steinhoff shares held by BVI (‘m) 43.2
Total amount owing to RMB and other banks (m) R374.12
   
Source: Moneyweb sources, authors’ calculations  

According to Moneyweb sources, following the fallout post December, a clause was included in the directors’ report of Pepkor Trading which stated: “Subsequent to year end, the company issued a guarantee in favour of RMB for R430 million for performance of a loan payable by BVI”.

Moneyweb was made aware of the existence of the guarantee back in April. When we initially asked Star about it through an exchange of emails on May 10 they provided the following response, effectively denying it:

Moneyweb: Has the company entered into any agreements to cover losses or potential shortfall on any exposure by the groups’ directors or employees to the Steinhoff share price following the announcement by Steinhoff that it was investigating “accounting irregularities” ? 

Star’s response: “Star has not entered into any agreements to cover Star directors’ or employees’ exposure as a result of the Steinhoff events. The only factor which may be relevant here is that a long-term cash retention scheme was implemented for Star key senior management who were historically incentivised by way of Steinhoff shares. This is to ensure that key senior management remains motivated over the long term and remains with the Star group.”

Moneyweb understands the long-term cash retention scheme is something completely separate to the guarantee issued by Pepkor on behalf of BVI.

In more correspondence provided on Monday, Star added the following details:

At the time of your questions, Star had not (and still hasn’t) entered into any agreement to cover losses or potential shortfall of employees included in the scheme.

The various options available of dealing with the third party debt was taken under review which included legal advice and mandatory consultation with shareholders of the scheme.

A decision was reached at the audit committee meeting on Friday May 25 to take a conservative approach and to provide for the third party debt guarantee. The matter was considered by the audit committee based on significant engagement with all parties and seeking advice from external audit.

 The historic Pepkor Holdings management investment scheme – for which Star’s subsidiaries are guarantor for, started in 2011 and the scheme continues to operate. It is also very important to note that the debt has not been called upon and management has taken the conservative view to provide for this.”

This raises an obvious question: How can a Star subsidiary that has issued a guarantee to a bank for third party debt involving current and former employees, not construe this as entering into agreements to cover losses or potential shortfall?

Other questions that management can answer at the company’s interim results announcement today [Tuesday] include: How does Star justify issuing a guarantee for third party debts while it was scrambling to source liquidity in the aftermath of December? What makes the shareholders – who are employees of Star – so special that they get financial assistance from the company when thousands of others that have seen their wealth evaporate in Steinhoff’s collapse, have not? And finally, are the beneficiaries of BVI technically insolvent, and if so, how can they be entrusted to run a company?

This problematic situation comes at a time when Star and its parent company, Steinhoff, have yet to explain why the company did not disclose the imminent litigation emanating from former Tekkie Town shareholders ahead of the bookbuild conducted on April 11, which saw Steinhoff selling 200 million shares in Star through a private placement.

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The hits keep coming…so glad I stayed away from Wiese involved companies. Felt a bit absurd at the time I made the decision and based purely on the fact I didnt care for how the man and his companies operate. And yet now look.
Sometimes the gut ain’t wrong..

Providing guarantee for share margins is very unusual for a listed company and totally unnecessary. In any event Pepkor and STAR should have disclosed the liability risk in prior financial statements – yet again irregular and fraudulent accounting.
Instead of an affiliate of STAR standing surety for a share incentive scheme of Pepkor directors and employees, they should merely have taken a put option to cover the down-side risk potential.
The short-cut, non-compliant, cowboy-style corporate management behaviour run very deep in Steinhoff NV, STAR and all affiliate companies.
Without a deep-cut, clean-up under senior management and directors, the rot won’t be stopped. Seven months down the line and the skeletons are still jumping out of the cupboards.

There is never only one cockroach

Also, what was RMB thinking? Cool, listed companies regularly guarantee leveraged investing by former and current staff.

I still don’t understand how local debt is being taken out at par with so much other noise. Hey-ho, onwards and upwards whoop!

Welcome to the reality of trading on margin guys! The directors and senior management had a geared naked long position on Steinhoff. They chose not to cover their long position by buying put options because the were 100 % certain that Steinhoff shares could only rise in value. Now, after the crash, they force ignorant shareholders to give them a free put option with a very deep in-the-money strike.

This is called fraud and theft in ordinary language. This is similar to taking out insurance after being involved in the accident you plan to claim for. These people cannot be “fit and proper” according to JSE listing requirements. They are acting to the detriment of the shareholder and only in their own narrow interests.

“All animals are equal, some are just more equal than others.” (George Orwell).

Robbing Peter to pay Paul – this is blatant manipulated theft on a grand scale…and as someone earlier has said – there is never just one cockroach!

This is bad news.

No problem with paying very good money for employees/exceutive directors working for any company to do the company’s business.

Not so much for doing private business. This is a no no.

How many CA(SA)s involved?

And we citizens constantly criticise the government for corruption whilst corporate S.A.’s executive management consists of professional scam artists and fraudster masquerading under such titles as CEO, CFO, Chairman of the Board, etc.
Think of Steinhoff, African Bank, M&R construction industry price collusion, PPC cement collusion, Tigerbrands bread fixing price collusion (to be later followed by the listeriosis affair and the death of over 200 citizens)….. STAR has joined the list!!!
And what does the JSE do amidst all this corporate fraud??
Who is going to jail??

The difference between poison and medecine is dosage.
The difference between the fraud committed by businessmen and politicians comes down to sophistication. Politicians are so incompetent and stupid, they commit fraud in broad daylight and it is easy to prove in a court of law. Business people on the other hand, are generally more competent than the law enforcement officers who have to supply the evidence to ensure a guilty verdict. That is why nobody is convicted of white-collar crimes in South Africa. Only poor Jack Milne…but he is a dumb **** anyway.

To be fair to the JSE corporate fraud is more a matter for the FSB, NPA and Hawks.

Investors can also vote with their feet, so to speak, by dumping shares of dodgy companies and being more discriminatory in their investment choices.

Just to be clear, are we saying that

A JSE listed company

issued a bank guarantee

to support the leveraged equity bets

of a non-subsidiary company

that is owned by former and current executives?

Whether that entity was invested in the shares of the company issuing the guarantee or the shares of its parent company is largely irrelevant, except for (1) the fringe benefit tax consideration and (2) possibly aspects of the Companies Act relating to financial assistance and (3) disclosure, governance, conflicts, etc etc etc etc

Go to jail, do not past Go

Johan Buys – not exactly – Pepcor a subsidiary (or affiliate) of STAR (a JSE listed company) provided a guarantee to Rand Merchant Bank (RMB) essentially for a Pepcor senior management and directors’ (staff) share incentive scheme which shares (in Steinhoff NV) was acquired on a leveraged basis (borrowed the money to fund the purchase of such shares).

Both Pepcor (as a subsidiary company) and STAR as the parent or holdings entity should have disclosed and should have made provision for this guarantee obligation (liability) in their prior financial statements but have opted to rather hide this obligation from their financial statements.

Firstly Mr De Beer anyone who stays away from Wiese companies is in my humble opinion both a wise man and one with some real business ethics. The JSE NPA and the Hawks may well be the people to investigate but if nobody lays charges they simply do nothing. There is a good reason people such as Wiese ( who is a qualified attorney ) pay huge money to attorneys and Chartered Accountants. They are paid to devise schemes that are on face value fraudulent but very often lie in a grey area which makes it difficult to prosecute them. In this case as well as the manipulation of the assets values in Steinhoff it appears to be pure fraud if not pure theft. I have watched these men for years. They will have some poor soul who will take the fall but very, very rarely do any of the actual masterminds stand trial. I pray this will be different but without parties coming forward and laying charges it is highly unlikely to be investigated. State Capture in its purest form.

south african businessmen are crooks..way tooo good to be true

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