Stock buyers start circling the scraps of sorry Steinhoff



Stock buyers start circling the scraps of sorry Steinhoff

Share price has doubled since June but is still 97% off where it was in December 2017

Ann Crotty

There is nothing quite like kicking a can down the road to boost trading sentiment. And so it seems that the prospect of getting creditors to sign up to a three-year debt standstill has seen the Steinhoff share price spike to a recent high of R2.90 on Thursday.
The share price is now well over twice the level to which it had dropped in early June. Sadly, for long-term Steinhoff investors, it is still 97% off the level it was trading at ahead of the announcement about “accounting irregularities” in December 2017.Like most can-kicking the lock-up agreement (LUA) that Steinhoff is hoping to put in place will provide it with the room needed to arrange an orderly restructuring of the group – or an orderly dismemberment of it. Which of these outcomes take place will depend on the findings of the much-anticipated PwC report.
But like most can-kicking the LUA also comes with a hefty price tag. That it only has to be paid in three years’ time means traders, whose idea of long term is about five days, don’t pay too much attention to it.
The payment that Steinhoff is hoping will lure the creditors is a 10% interest rate – this is substantially more than the interest payment offered on the original debt. It might not even be enough to get the backing of large investors who are often referred to as “vulture funds” 
For Steinhoff, which has debt of around €9-billion, the charge amounts to a staggering €900-million a year. Even if it hadn’t sold any businesses this would have been a near-crippling bill to pay.
The good news for investors in Steinhoff’s South African businesses is they appear to be ring-fenced from the whole can-kicking process.

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