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Steinhoff seeks about R3.8bn from KAP share placement

Embattled retailer will reduce KAP stake to refinance debt.

Steinhoff International Holdings is seeking to boost the amount raised from asset sales to about $1.4 billion as the embattled global retailer strives to shore up its balance sheet.

The owner of Conforama in France and Mattress Firm in the US is selling about R3.8 billion ($322 million) of shares in South Africa’s KAP Industrial Holdings, adding to disposals including stock in investment holdings company PSG Group and a private jet. Steinhoff said on December 5 it had uncovered accounting irregularities and that chief executive officer Markus Jooste quit, leading to a 90% plunge in the share price and emergency talks with lenders.

“This looks well managed and KAP will be very happy to see Steinhoff selling in an orderly way that improves Kap’s spread,” Mark Hodgson, a Cape Town-based analyst at Avior Capital Markets, said by phone. “It’s better sooner than later for Steinhoff.”

The fund-raising initiatives are enabling Steinhoff to buy time from creditors as the Frankfurt-listed company struggles to boost its finances in the wake of the stock-price crash. The retailer, which also owns Africa’s largest clothing chain Pep, said earlier this month that its near-term liquidity needs have been met and that the company is in the process of redeeming a domestic medium-term note program.

Shares in KAP dropped for a fourth day, sliding 2.8% to R8.26  as of 9:22 am in Johannesburg, while Steinhoff rose 3.4% to R4.55.

KAP and Steinhoff share performance

Steinhoff will use the proceeds of the KAP sale to refinance or redeem South African debt, one of the plans the company is pursuing to strengthen its finances. The shares will be offered at a reference price of R8.50 each, the closing level on Monday, joint-bookrunner Standard Bank Group said in a statement.

The company has appointed PwC to investigate its finances ahead of restating accounts dating back to 2015, and has referred Jooste to South Africa’s anti-graft watchdog. The auditors are focused on certain off-balance-sheet structures and deals with related parties and is likely to find that some assets, revenue and profit figures have been overstated, Steinhoff said on March 1.

The sale of shares in PSG raised $931 million over two rounds., while the disposal of a 17% stake in French online retailer Showroomprive and a flagship store in Vienna generated a combined 139 million euros ($171 million).

KAP, a Stellenbosch-based supplier of industrial products such as timber and chemicals, said last month it’s scrapping two business deals with Steinhoff to distance itself from the company. An agreement to share corporate-services including legal and investor relations ended on March 1 and an arrangement to co-rent office space will run until the end of the month.

Steinhoff’s stake in KAP will fall to 26% from 43% as a result of the placement.

“Steinhoff continues to view KAP as a compelling investment case, especially in view of recent events in South Africa and the prospect of improving economic conditions,” said the company, referring to the replacement of former President Jacob Zuma with Cyril Ramaphosa.

© 2018 Bloomberg

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Good money chasing bad money. Cut your loses and let Steinhoff die

Aaaah blind for the opportunity. If they are really such a mess, they would simply sell the entire stake.

Some people like money market investments when they feel a little sneaky, I think you are that person. Goodluck with the inflation-like returns.

When the curator wolves are knocking on the door, one is usually willing to sell off the family jewels at a lower than for value price. It took Steinhoff NV long enough to come to the realisation that drastic steps are required to keep the ship afloat – 3 months to be exact. But still they are not ready to sell or close down under-performing and loss-making affiliates, to cut deep into operational expenses, to tone down the remuneration of the top third income earners (including all directors), to scale down to a lean and mean team by retrenching over stocked staff, etc. The family silver is now being auctioned off to fund the over-stretched operational shortfall and to keep the critical creditors happy before they call in the securities for the huge debt liabilities. Steinhoff will become a case study of how not to linger when the house is on fire.

The board are LITERALLY working on this day and night. It is quite clear Jooste was the orchestrator from what we know, and the e-mails. That’s not even debatable.

It is very clear that the current board are not invomved with anything. These discussions would have been held in detail over December (“walk now if you are compromised” sort of thing).

The time for the company to go bust has gone. I admit I hold shares, and I was very worried up until a week ago. However, debt holders had their chance to call the loans, which would have been a silly choice. The only option left for the banks are to hold on to the shares (christo margin loans) and to refinance. That is always the strategy for IBanks in these situations.

The company has operated under horrific conditions over the 3 month period, which makes the trading results reasonable. The cost efficiencies realised by the company are invaluable moving forward. Corporate jet lifestyle is gone, which is appropriate, since this is a furniture retailer and not a research company specialising in biotech.

It’s not the most ethical buy, but returns are returns. This company is close to being out of the fire.

Your comment may well prove to be accurate since you know what you are talking about. I just don’t agree 🙂

I agree, the media has been ruthless and mostly focusing on reporting negative news.
I also felt sorry for the directors and shareholders when this website published the Marcus Jooste emails the same day the trade update was published, continuing the pressure on share value. Makes one feel like the media wants them to fail
I assume bad news drive hits on your website

What would make you say that KAP is the family jewels. KAP is an extension of Steinhof by a different name. All the real retail “jewel” business went to Steinhof and all the old historic problematic manufacturing went to KAP. KAP is a mixture of a whole lot of completely diversified manufacturing businesses which Steinhof acquired over the years and later realised that it was not their core focus so they dumped everything else into the KAP scrap yard.

Take the time to break down this highly diversified business and than sit back and think whether you would like to run it.

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