Steinhoff still on life support

That Steinhoff raised more than €315 million (more than R5.8 billion) by selling off some shares in one of its subsidiaries saw the share price increasing a few cents in early trade on Wednesday.

The share sale can however be described as nothing more than a new drip for the terminally ill patient.

Share sale won’t help much

In fact, the medicine came with a hefty price tag. Steinhoff announced that the sale of 38 million shares in Pepco, by way of an accelerated share placement with institutional investors, realised a price of zl38.95 (Polish zloty).

ALSO READ: JSE bars Steinhoff’s Markus Jooste for 20 years, fines him R15m

This represents a discount of nearly 7% to Pepco’s closing price of zl41.86 on the Warsaw Stock Exchange Tuesday afternoon.

The discount on the whole parcel of shares comes to R433 million, and then one needs to add the not-insignificant fees of advisors.

Goldman Sachs Bank of Europe and JP Morgan acted as coordinators for the placement, and Santander Bank and Numis Europe were doing the bookbuild exercise.

The number of shares sold was increased from the original plan to sell approximately 34.5 million shares due to demand from investors for Pepco shares, Steinhoff noted in its announcement following the placement.

The placement was completed within hours. The placement opened after the JSE closed on Tuesday afternoon, Steinhoff said, and announced that it was all done early Wednesday morning.

It isn’t unusual that it done so quickly, a spokesman for Steinhoff tells Moneyweb . “It is well known that Steinhoff has approximately €10 billion in debt and had announced earlier that it will sell some Pepco shares,” he says.

The corporate advisors obviously know their clients well, and a good deal is a good deal. Goldman Sachs, JP Morgan and Santander were also involved in Pepco’s initial public offering in May 2021, which was also facilitated through a bookbuild with institutional investors.

ALSO READ: Steinhoff crashes to a record low

Pepco update

Pepco’s retail chains are performing well. A trading update a few days ago noted that Pepco and Dealz performed well in Europe, while Poundland in the UK also reported solid growth.

Revenue for the first quarter of the 2023 financial year (to end December 2022) increased by 27% compared to a year ago to €1,65 billion on a constant currency basis.

All the brands outperformed their competitors and delivered “record trading days” during the Christmas trading period, management says.

The group keeps expanding and opened 105 news stores during the quarter. The total number of outlets increased to 4 066.

“We continued our accelerated store expansion programme, the group’s single biggest driver of value creation,” it says. “We plan to accelerate our openings through the year and remain on track to deliver our target of 550 new stores in financial 2023.

“Our extensive ‘New Look’ re-fit of around 2,500 Pepco stores in Central and Eastern Europe, as trialled in Wroclaw and Warsaw, will start in earnest in January 2023. In Spain, we have seen a strong performance from our new Pepco Plus stores.”

ALREAD: In SA, the shield of legal privilege is not an absolute

The business benefitted from higher stock levels after previous supply issues, Pepco Group CEO Trevor Masters says. “We have seen a strong performance in Western Europe, particularly in Italy and in Spain.

“We had a strong opening in Greece this quarter and we are looking forward to launching in Portugal in the spring of 2023. In addition, we are excited about the prospects for Dealz in Poland, where we continue to expand rapidly with 16 new stores added this quarter.

“Whilst trading conditions continue to be challenging, we are confident in the advantages of our discount customer proposition and our continued strategic progress.

“Assuming the macro trading environment performs as we expect, we remain on track for another year of consistent performance,” says Masters, indicating that Pepco expects earnings before interest, tax, depreciation and amortisation to grow by double figures – “in the mid teens” – in the financial year.

Selling down

It will use the proceeds to reduce some of its outstanding debt, Steinhoff mentions in its announcement regarding the sale of the Pepco shares but doesn’t say whether this is to pacify specific lenders to ensure that the recent proposal to restructure its balance sheet will get the requisite acceptance to put it into effect.

The share placement is not related to the maturity extension transaction announced in December and that it continues to work towards it, Steinhoff actually noted. It promises updates when necessary.

It is not the first time that Steinhoff is selling assets to reduce its debt.

It sold its small interests in SA-listed KAP Industrial, PSG and Unitrans soon after its accounting scandal came to light and has been selling Pepkor shares to settle civil claims.

ALSO READ: Steinhoff defeat: Court rules SA courts can decide on company’s liquidation

A significant settlement was to the founders of Tekkie Town, who eventually agreed to Steinhoff’s settlement proposals when offered 29.5 million Pepkor shares – at the time worth R649 million – and R500 million in cash.

This and similar sales cut Steinhoff’s interest in Pepkor from more than 70% at the time of Pepkor’s new listing on the JSE in 2017 to the current 51%. The sale of the Pepco shares will reduce Steinhoff’s stake in Pepco from 79% to below 73% once the sale is finalised within the next few days.

Steinhoff and its creditors are probably hoping that stock markets will hold up to reignite Mattress Firm’s intentions to list in the US. Mattress Firm gave notice of its initial public offering late in 2021, but it was cancelled a few weeks ago due to volatile stock markets.

The listing will help Mattress Firm to reduce its own debt, and a proper market value for Steinhoff’s 50% will please creditors and make it easier to sell.

There has also been talk of listing Fantastic Furniture, part of Steinhoff’s wholly-owned subsidiary Greenlit Brands. Greenlit Brands operates in Australia and New Zealand. Its management makes a point of saying that the group is performing well and had repaid all its debt following a recent restructuring.

The big Mattress Firm (2 300 outlets) and the smaller Greenlit (227 outlets) are Steinhoff’s only unlisted retail operations. Listing them will make valuing Steinhoff’s assets easier, and easier to compare in relation to its huge debt.

But Steinhoff will probably disappear from the JSE before this happens if shareholders vote in favour of the latest credit extension proposals.

The effect of the proposal is that shareholders will end up with 20% of Steinhoff and creditors with the rest.

The share price indicates that investors are thinking that this is worth just more than 50c per share, but only time will tell if they will get something out some day.

Steinhoff share price

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.

NOW READ: Tekkie Town still wants Steinhoff liquidated, not saved