Steinhoff as dead as a dodo

Steinhoff’s share price plummeted to an all-time low, which is unsurprising considering what awaits shareholders.

On Wednesday, the retailer’s share price slumped by 62% following a SENS announcement confirming that its restructuring plan will go ahead.

The share price rout continued today, and the Steinhoff share traded at 8c per share at the time of writing.

To understand the tremendous wealth destruction, you have to go back to 2017 when a massive accounting scandal was uncovered in Steinhoff.

In 2019, for the first time, the group’s liabilities dipped below its assets, making Steinhoff International Holdings technically insolvent.

The debt continued to rise, and the gap between total liabilities and assets widened. In 2022, Steinhoff had R232 billion of assets and total liabilities of R295 billion.

It means that Steinhoff’s liabilities exceeded its assets by R63 billion without any concrete plans to reverse the situation.

In December 2022, Steinhoff announced that it was engaging with its largest creditors to come to an agreement to extend its financial debts from a repayment date of June 2023 to at least June 2026.

However, it did not receive enough voting support from shareholders at its AGM to implement its strategy of debt maturity extension.

The company then announced that it would seek to implement this agreement under the Dutch bankruptcy act (WHOA act – Wet homologatie onderhands akkoord) to enforce its debt maturity extension.

Under the terms of the WHOA, Steinhoff’s debt maturity would be extended to at least 30 June 2026.

Steinhoff announced earlier this year that this application was submitted for approval to the District court of Amsterdam.

Once the agreement would become enforceable, 100% of the economic interests of the post-agreement group would be owned by the creditors of Steinhoff.

Following the implementation of this agreement, Steinhoff would no longer be the group’s parent company. The new parent will be New Topco, wholly controlled by Steinhoff creditors.

Shareholders of the current Steinhoff group would then be entitled to hold contingent value rights (CVR) in the new unlisted group formed post the restructuring.

Steinhoff would have the ability to hold an extraordinary general meeting where a vote would be cast to disband Steinhoff.

Steinhoff shares will then be delisted from both the JSE and the Frankfurt stock exchange.

Upon dissolution of Steinhoff, shareholders would not receive any payment or distribution for the shares held.

All Steinhoff shareholders would be entitled to CVRs on the new group parent New Topco.

These contingent value rights will give holders a claim to distributions of the new group as soon as the shareholders of New Topco (Dutch foundations) become entitled to distributions.

These CVRs are, therefore, contingent rights – they are contingent on the pay-outs to New Topco investors.

No pay-outs may be made to any investor or CVR holder for as long as the debt under this agreement remains outstanding.

Steinhoff’s total external debt amounts to roughly EUR 10.4 billion. A liquidation analysis determined that if Steinhoff was liquidated today, the total proceeds would be between EUR 5.2 and EUR 7 billion.

This indicates that investors would not receive any compensation if Steinhoff was liquidated today.

It is also highly unlikely that the new group will be in a position to make any distributions toward CVR holders soon.

Sasfin’s David Shapiro said that the only people who benefitted from trying to revive Steinhoff were the service providers, the accountants, and the lawyers. No investor made any money.

“Steinhoff is a dead dodo that should have been allowed to be extinct a long time ago,” Shapiro said.

Steinhoff released an announcement on Wednesday afternoon stating that the court has confirmed its application to implement the WHOA act restructuring as set out above.

This restructuring has therefore become effective and fully enforceable from Wednesday afternoon.

Upon the release of this statement, Steinhoff’s share price fell by over 70% as shareholders rushed to exit their Steinhoff positions.