By Tanisha Heiberg and Tiisetso Motsoeneng
JOHANNESBURG (Reuters) – Steinhoff
More than $14 billion has been wiped off the market value of the owner of Conforama furniture stores and Poundland discount shops since Wednesday, when it announced an independent investigation into its accounts and said its CEO was leaving.
The collapse leaves South African tycoon Christo Wiese, Steinhoff’s top shareholder and chairman, more than $3 billion out of pocket, stripping him off his billionaire status.
Wiese, who likes to say “things go up, things go down,” is now worth just over $740 million, according to Forbes magazine.
The stock closed 40 percent lower at 6 rand in Johannesburg after touching a 14-year low of 5 rand. It closed down 21 percent in Frankfurt, where the group has a primary listing.
After the market close, Steinhoff said it had set up a board subcommittee, composed of independent non-executive directors, to strengthen governance and that advisory firm PwC had started its independent investigation.
“Trading in the underlying businesses across the globe continues uninterrupted particularly in the pre-Christmas period,” it added in a regulatory statement.
Cratos Capital equities trader Greg Davies said earlier buying of the stock was due to profit taking by short-sellers who had sold the shares around 55-60 rands.
Short-sellers borrow shares for a fee and sell them into the market, in the hope of repurchasing them at a lower price and pocketing the difference.
More than half of Steinhoff’s shares that are available to borrow are currently out on loan, according to Markit, a data provider – more than doubling from August and up from 40 percent on Monday. The figure is a record for Steinhoff and the highest for any South African company tracked by Markit.
The cost for short-sellers to borrow shares for a year has more than doubled from its twelve-month average of 1.4 percent to 3.1 percent, according to Astec, another data provider. Both Markit and Astec estimate it would take around ten days of trading for short-sellers to close all their positions.
Another trader in Johannesburg said there was a growing sense that this week’s approximate 80 percent share price tumble had triggered “bottom fishing” by buyers speculating the stock was at a level from which it could only go up.
“There does seem to be a little bit of bottom feeding coming in here, we are starting to see in the last half hour or so,” Independent Securities trader Ryan Woods said.
Steinhoff’s problems deepened on Thursday after Moody’s sent its debt deep into junk territory, cutting it by four notches and raising concerns about its governance.
“Given that allegations of accounting irregularities were raised and rebutted in August 2017 and again in November 2017 it calls into question the quality of oversight and governance at Steinhoff,” Moody’s said in a statement.
It cut Steinhoff’s debt to B1, or highly speculative, from Baa3, the lowest investment grade rating.
Steinhoff admitted to accounting problems earlier this week and its veteran chief executive Markus Jooste quit, raising questions about its liquidity and future.
A lower credit rating means the borrower usually has to pay more to borrow from investors and can reduce the value of its existing debt, forcing some holders to sell.
Steinhoff used debt to fund a shopping spree it began in 2011 with the acquisition of France’s Conforama, and turned it from a South African furniture group to an international retail empire. Its gross debt is around 7 billion euros ($8.2 billion), with 20 percent maturing within five years.
Steinhoff said on Friday it was pushing back a meeting in London with its banks from Monday to Dec. 19. That meeting had been due to discuss financial results, but their release was delayed on Wednesday.
The banks include Standard Bank, Commerzbank, Citigroup, Goldman Sachs, HSBC and FirstRand. They lent 1.6 billion euros to Wiese last year to buy additional stock in Steinhoff through a family trust. They hold part of his stake in the company as collateral.
Steinhoff has been under investigation for suspected accounting irregularities by the state prosecutor in Oldenburg, Germany, since 2015. Four current and former Steinhoff managers are suspected of having overstated revenue at subsidiaries, German prosecutors said this week.
Steinhoff has denied any wrongdoing in relation to the German allegations. It has not given any details about the “irregularities” it has identified and has sought to reassure investors about its liquidity.
Separately, German financial watchdog Bafin said on Friday it had started a probe into the trading of Steinhoff shares this week. Bafin routinely looks at large or unusual share price moves as part of its campaign to stamp out market manipulation and insider trading.
(Additional reporting by TJ Strydom in Johannesburg, Alasdair Pal and Tom Bergin in London, Victoria Bryan in Berlin; Editing by Alexander Smith and Mark Potter)