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Moody's downgrades Steinhoff amid accounting probe

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Moody's downgrades Steinhoff amid accounting probe

Moody's said Dec. 28 that it has downgraded Steinhoff International Holdings NV to Caa1 corporate family rating, citing "increasing pressure on the company's liquidity profile" as the South African company faces mounting pressure from an accounting probe.

The ratings firm also downgraded Steinhoff Investment Holdings Ltd. to Caa1 and assigned a B3.za national scale corporate family rating to the investment holdings group.

"The situation has been compounded by its operating companies placing an additional liquidity burden on Steinhoff's centralized treasury function to fund their working capital needs," Moody's analysts said. "Moody's notes that the operating companies have experienced a reduction or cancellation of credit insurance lines in recent weeks, with credit facilities increasingly being suspended or withdrawn."

The Moody's downgrade came on the same day Steinhoff Asia Pacific Group Holdings Pty Ltd, a subsidiary, separately said it has independently brought on legal and accounting firms as its South African parent company continues to be embroiled in the accounting scandal.

Steinhoff Asia Pacific Group CEO Michael Ford said in a Dec. 28 news release that the Australia-based subsidiary has hired Sydney-based legal firm Minter Ellison as well as forensic accounting firm Ferrier Hodgson, also headquartered in Sydney. The retailer maintained independence from its parent company, stressing that it remains profitable and financially stable.

The Australian Steinhoff subsidiary stressed that it is not dependent on capital support from the parent company and has its own independent banking facilities in Australia.

"The appointment of experienced advisors is a prudent step by Australian management in circumstances where the parent company is working through significant uncertainty," officials said. "Steinhoff Asia Pacific and its business are not in distress and are trading normally."

Steinhoff Asia Pacific's sales are up 12.4% in December so far year over year, Ford said, and sales for the group across Australia and New Zealand were up 3.1% for the year ending November 2017 compared with the prior 12 months.

The announcement comes during a turbulent month for the Stellenbosch, South Africa-based furniture and discount chain, which is incorporated in the Netherlands and traded on the Frankfurt Stock Exchange.

On Dec. 6, Steinhoff CEO Markus Jooste resigned following a company decision to investigate alleged accounting irregularities, an announcement that also caused shares to plummet by 60% that day.

The South African retailer said Dec. 19 that it had €10.70 billion in outstanding debt, far greater than its roughly €2 billion market value. As a result, it reduced or canceled much of its credit insurance for its operating companies. It faces legal action at the Enterprise Chamber of the Amsterdam Court of Appeal and has encountered problems stemming from the look into the validity of its past financial statements.

Steinhoff operates household goods, general merchandise and automotive brands, including Mattress Firm in the U.S. as well as Conforama in Europe and Hertz in South Africa.

Mattress Firm, which was acquired by Steinhoff in 2016 for $3.8 billion, plans to close 200 stories over the next 18 month, according to a Dec. 21 Houston Chronicle report.

Steinhoff's 10,000-employee Asia-Pacific group operates retail brands in Australia and New Zealand that include Fantastic Furniture, Freedom, Harris Scarfe and Best & Less.