Steinhoff facing liquidity problems and Court of Appeal decision

Short-term liquidity remains the most pressing issue for Steinhoff. If this is cut off, the various business units will immediately flounder. Hence, discussions with Steinhoff’s global banking and financing partners are ongoing. Steinhoff is also planning to appoint an external independent debt restructuring expert.

Steinhoff continues to make changes to the management board. Ben la Grange has now stepped down as CFO and as a member of the management board. He will focus on the finalisation of the company’s audited 2017 annual report and the group’s liquidity status.

Philip Dieperink, subject to ratification by the general meeting of Steinhoff, is to replace La Grange as acting CFO. He will remain as the CFO of Steinhoff UK.

Liquidity problems were brought to the fore in December when credit facilities were being cancelled or suspended. This threatened to jeopardise the supply arrangements of Steinhoff’s various retail outlets, including Poundland.

Davidson Kempner, a US hedge fund, came to the rescue by granting a two-year loan facility of £180 million to Pepkor Europe, the European arm of Steinhoff International. Pepkor Europe manages various Steinhoff Brands including Poundland, Dealz, Pep&Co and Pepco. Harveys and Bensons for Beds, furniture chains owned by Steinhoff, will also be able to draw down on this facility. Having bedded down this loan, these profitable chains are expected to deliver positive cash flows, without which they could have faced a sudden death.

Despite enraging the conservative British public with some risqué adverts, Poundland enjoyed a bumper Christmas season. The adverts were cheaply distributed on the internet, where they were much liked on Facebook by the younger generation, and apparently only cost £25.53. Perhaps these adventurous adverts are another sign that Poundland is flexing its muscles and stepping away from a conservative group.

Mattress Firm, a US subsidiary of Steinhoff International, has also managed to secure financing. It entered into a $225 million senior secured asset-based revolving credit facility with Barclays in December. In the press release dated December 22 2017, Ken Murphy, Mattress Firm’s president and CEO, stated that “This new credit facility provides independent liquidity and capital to support our strategy, and demonstrates the strength of our business, the value of our assets and the quality of our brands”.

The press release was interesting in that the legal caveats pertaining to certain “forward looking statements”, defined as any statement not based on historical fact, were longer than the actual press release. Fortunately, there does not appear to be any “regulatory investigation” into Steinhoff in the US.

The next big news item on the calendar is the forthcoming decision from the Enterprise Chamber of the Amsterdam Court of Appeal, which is expected to be announced no later than January 22. To recap, this decision concerns the dispute with a former joint venture partner who owns OM Handels GmbH and MW Handels, and who filed the petition with the court. The petition covers the treatment of a joint investment in a European retail venture. The matter was heard on September 21 2017 and relates to the September 2016 consolidated accounts. Steinhoff consolidated the investment as it was of the view that this was in compliance with IFRS. The former joint venture partner is questioning the consolidation.

There is also a hearing pending in Germany, the date hasn’t been set. This hearing concerns the resolution of the redemption of the joint venture in the European retail venture.

This Amsterdam Court of Appeal decision could cast a shining light on the complex Steinhoff structure, or it could be a damp squib.

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