Jean Pierre Verster reveals how he knew Steinhoff was in trouble

Protea Capital Management founder and CEO Jean Pierre Verster said discovering off-balance-sheet entities owned by associates of Markus Jooste confirmed the company was in trouble.

Verster, who manages his own hedge funds at Protea Capital Management, is well known for predicting the collapse of Steinhoff and African Bank.

By accurately predicting problems at these companies and shorting their shares, Verster helped generate good returns for his clients.

In hindsight, it seems logical that Steinhoff was a house of cards. However, at the time, it was a JSE darling with strong share price growth.

The reason it was so challenging to see problems at Steinhoff was that you had to combine numerous issues and look past the prevailing narrative.

For example, Steinhoff made many acquisitions, making it difficult to track its financial performance and growth. It typically provided proforma numbers, which are prone to significant adjustments.

It was also challenging to track the company’s debt. Steinhoff’s gross debt was R100 billion, and it was unclear how well it could service this debt through its operations.

Speaking to Smart Money with Alishia Seckam, Verster said there were many rumours surrounding problems at Steinhoff.

However, despite these rumours, many analysts continued to believe Steinhoff was a great company and pumped money into the share.

Verster, in comparison, started to investigate these rumours. It included looking at numerous Steinhoff subsidiaries in Austria and Switzerland.

“When I looked at these subsidiaries, I saw weird other owners. However, these other owners were always owned by friends and associates of Markus Jooste,” he said.

“It did not make sense. I asked Steinhoff about the issue, but they could not give a good answer. That is when I realised there were off-balance-sheet entities.”

He explained that he could not predict exactly when Steinhoff would run into serious problems or collapse.

However, when Steinhoff collapsed, Verster knew it happened because of a hole in the balance sheet. “They round-tripped assets and income,” he said.

“I was able to anticipate the problems because of the off-balance-sheet entities I found by spending hours looking for the details inside the Steinhoff conglomerate.”