Five Ways Steinhoff Could Try to Save Itself If It Acts Swiftly

(Bloomberg) -- Steinhoff International Holdings NV's attempts to arrest the fallout over accounting irregularities have failed to restore investor trust. Despite three statements from the company in the past 48 hours, more than 140 billion rand ($10.3 billion) in value has been destroyed, showing that investors don't believe the retailer has gone far enough to boost confidence in the stock. Here are five things the Frankfurt- and Johannesburg-listed company could do to try to save itself from collapse, according to analysts and fund managers.

1. Sell assets, such as property

Steinhoff said in a statement on Thursday that it could sell “certain noncore assets” and raise a minimum of 1 billion euros ($1.2 billion). Better disclosure about what constitutes a noncore asset might help restore trust. The company could detail its targets for sales and the expressions of interest it said it had received. Any properties for sale could be listed separately from businesses, according to Ron Klipin, a portfolio manager at Cratos Wealth in Johannesburg. A report by market researcher Euromonitor International suggested closing some stores.

2. Refinance liabilities and calm funders

The company has already said that subsidiary Steinhoff Africa Retail Ltd. will refinance long-term liabilities that are due to the parent company. That's a step, but total long-term debt is about 10 billion euros, preference share capital is around 1.5 billion rand and short-term debt, amounting to 6.2 billion euros, could “fall over if the business fails,” said Adrian Saville, chief executive officer of Cannon Asset Managers in Johannesburg. More needs to be done than the refinancing by Steinhoff Africa -- including sweet-talking the bondholders and bankers who now hold Steinhoff International's fate in their hands.

3. Disclose the details of off-balance-sheet entities

Steinhoff has not yet disclosed the extent of off-balance-sheet companies and vehicles, or their purpose. “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. Murray Dicks, reputation and risk leader for Steinhoff's auditor, Deloitte & Touche, declined to comment.

4. Start bankruptcy-protection talks and suspend the shares

Steinhoff has plummeted more than 75 percent over two days. By any definition, that's catastrophic. Steinhoff could initiate bankruptcy-protection talks and move to have its shares suspended. While it may be hard to recover from what could be seen as an admission of defeat, it would give Steinhoff time to ring-fence itself from claims as it tries to shore up its finances.

5. Expedite PwC's investigation

Steinhoff said on Wednesday it had approached PricewaterhouseCoopers to investigate the accounting irregularities. No detail was given on when the firm would start its work or how long it might take to produce its findings. Because of the share plunge, Steinhoff can't wait long. “Allegations of earnings manipulations, uncontrolled acquisition sprees and tax fraud are just the tip of the iceberg,” according to Wierzycka. “Many names are implicated. Many more will follow.”

--With assistance from Loni Prinsloo and Richard Weiss

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net.

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Eric Pfanner, John J. Edwards III

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