Moody's downgrades Steinhoff by 4 notches

Mae Love
December 8, 2017

The announcement came as a shock to investors, sending the share price on a nosedive crashing more than 60 percent on the stock markets.

"Incorporated in the Netherlands, Steinhoff is a vertically integrated retailer servicing value-conscious consumers and investing in complementary businesses".

Retail holding company Steinhoff's chief executive, Markus Jooste, resigned in a haste on Wednesday as the company asked for an investigation into accounting irregularities and possible fraud.

The reason for the downgrade was due to uncertainties and implications for Steinhoff's liquidity.

The company, whose primary listing is in Frankfurt, has been under investigation for suspected accounting irregularities by the state prosecutor in Oldenburg, Germany since 2015. "Off-balance-sheet companies were set up to hide losses", Magda Wierzycka, CEO of Sygnia Asset Management in Cape Town, said on Thursday, adding that "debt was taken on at a massive pace" inside those structures.

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On Thursday evening, ratings firm Moody's downgraded Steinhoff's credit rating from baa3 to B1 - "highly speculative" or junk. He was ranked as the third richest man in South Africa in March, with a net worth of $5.7 billion (R78 billion).

On Thursday Finance Minister Malusi Gigaba threw his weight behind regulatory investigations into the Steinhoff International scandal, while the JSE announced a probe into the retailer. He said he had requested the retirement funds regulator at the FSB‚ PIC and the Government Employees Pension Fund (GEPF) to provide him with a report on the extent of their exposure to Steinhoff.

He said he had asked for investigations by the Dutch Authority for the Financial Markets, Germany's Auditor Oversight Body and the Independent Regulatory Board of Auditors in South Africa into whether whether Deloitte in Germany or South Africa had complied with worldwide audit standards.

By 10h00 on Friday, Steinhoff's shares declined 41% in intra-day trade, to R5.90 - down an incredible 88% from the R50.25 at the start of the week.

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