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Steinhoff faces additional impairments amid accounting probe

An investigation into financial irregularities at Steinhoff International Holdings NV has found that the expected overstatement of profits and the accounting treatment of related parties could result in material additional impairments, the South African retailer said May 10.

In its first comment on the independent probe led by PricewaterhouseCoopers, Steinhoff said the extent of the discrepancies were "still being calculated and investigated," and would form part of a June 2018 presentation dealing with interim results.

However, the initial feedback from PwC's forensic investigation, launched in December 2017, "substantially aligns with and confirms the irregularities identified by Deloitte," Steinhoff said. The investigation "is reviewing the validity and recoverability" of certain non-South African assets that initially were estimated at about €6 billion.

Steinhoff added that the roles and responsibilities of its previous management were under scrutiny and that it was considering clawing back bonuses paid in the past to "certain senior executives."

The company, which operates the Sleepy's brand in the U.S., Poundland in the U.K., and Conforama in continental Europe, said Jan. 31 that it had reported former CEO Markus Jooste to South Africa's Directorate for Priority Crime Investigation, known as the Hawks, on suspicion of committing criminal offenses in relation to the accounting irregularities.

In legal action in the Netherlands, Steinhoff said it was seeking to institute "contribution proceedings" against Jooste.

Jooste resigned Dec. 6, 2017, when the company began its probe of irregularities highlighted by Deloitte. Since that time, its share price has collapsed. On May 10, its Frankfurt-listed shares closed at 12 cents, down more than 95% from the closing price Dec. 5, 2017, wiping out more than €12 billion in market capitalization.

The accounting issues and the decline in the value of Steinhoff's shares prompted the company's lenders to suspend or withdraw credit facilities. It has sold assets, including stakes in KAP Industrial Holdings Ltd. and Steinhoff Africa Retail Ltd., to raise cash to meet its debt obligations.

Steinhoff's total outstanding external debt at March 31 amounted to €10.4 billion — €8.7 billion attributable to Europe, €1.4 billion attributable to South Africa and €250 million to its U.S. operations.

It has repaid about €2 billion of its debt in South Africa since January 2018. Discussions over the debts in Europe and the U.S. were progressing and a restructuring plan would be presented at a private lenders' meeting to be held in London on May 18.

Agreement on a debt restructuring plan is needed as soon as possible to provide a more stable trading environment, the Stellenbosch-based company said.

Steinhoff, which is incorporated in the Netherlands, is embroiled in a raft of lawsuits stemming from investors who have seen the value of their investments shrink. These include a class-action suit in Germany.

The company acknowledged claims by entities connected to former Chairman Christo Wiese. Wiese is suing Steinhoff for 59 billion South African rand. He resigned as the company's chairman in December 2017 and subsequently cut his stake in February to 6.20% from 20.52%.

Steinhoff said it will use all means and resources to "vigorously defend" the Wiese entities' action.

The retailer also received demands amounting to €100 million from entities connected with businessman GT Ferreira and €120 million from entities connected with vendors of footwear retailer Tekkie Town. "If and when initiated, these claims will be considered in the context of the group's anticipated restructuring," Steinhoff said.

Meanwhile, the company said it is working to ensure that its unaudited interim results for the six-month period ended March 31, including an unaudited balance sheet for Sept. 30, 2017, will be published before June-end.

Steinhoff expects to release its full-year audited 2017 results by the end of December and its audited 2018 results before the end of January 2019.

As of May 10, US$1 was equivalent to 12.34 South African rand.