Namibia Exposed to Steinhoff Scandal

Steinhoff International CEO Markus Jooste resigned with immediate effect after the retail giant's admission of financial irregularities that led to an investigation, and a drop of more than 60% in its shares.
13 December 2017

NAMIBIAN insurance companies and pension funds that invested in South African retail giant Steinhoff could lose billions of dollars in the wake of the unfolding accounting scandal that has rocked financial markets.

Steinhoff's share price fell 87% over the past few days following an announcement on 4 December that the company would release unaudited statements because the Steinhoff supervisory board had not yet finalised its review of matters relating to a tax investigation in Germany.

According to economist and co-founder of Cirrus Capital, Rowland Brown, the share price collapse has wiped out over N$200 billion in market value for the company and its shareholders.

"Unfortunately, Namibia will be exposed to this collapse, as many pension and long-term insurance funds, as well as discretionary investors, will have had sizeable exposure to the company and related companies (that have also experienced declines as a result of the Steinhoff fallout)," he said.

Another economist, who spoke on condition of anonymity, told The Namibian that many pension funds, insurance companies and medical aid schemes had between 0,5% and 2% of their funds invested in Steinhoff before last week.

"For a fund of N$100 billion, like the GIPF for example, that would mean a minimum of N$500 million they risk losing. The same applies for all investors. It is worth noting that at this stage it is unclear whether these losses are permanent or temporary, but the picture does not look good," he said.

GIPF's public relations officials were apparently on leave yesterday and efforts to determine whether the civil servants' pension fund has any investments in the troubled South African company were unsuccessful.

However, Namibia will be exposed to the Steinhoff share price collapse, analysts have said.

On 6 December the company announced the resignation of CEO Markus Jooste and that it would publish the audited 2017 statements when it is in a position to do so. In addition, Steinhoff said it will determine whether any previous years' financial statements will need to be restated.

Steinhoff is a global retail holding company and owns brands which include Incredible Connection, Hifi Corp, Hertz Car Rental, Timbercity, Pep Stores, Dunns, Shoe City, Pennypinchers, Tekkie Town and Ackermans, amongst many others.

Steinhoff International Holdings has stakes in Namibian companies as well, controlling entities like Namib Foam (Pty) Ltd, PG Bison Namibia (Pty) Ltd, Unitrans Namibia Holdings (Pty) Ltd, Jordan Shoes, Glodina and Industrial Footwear.

Steinhoff also said that trading in the underlying businesses across the globe continues uninterrupted, particularly in the pre-Christmas period.

In terms of the impact on Steinhoff investors, most pension funds would have had some exposure to the stock since the company was in the Top-40 index on the JSE, Eloise du Plessis, head of research at PSG Namibia told The Namibian yesterday.

"Pension fund portfolios are diversified so the decline in one stock will not erode an entire fund. Pension funds are not allowed to have more than 75% in equities and not more than 10% in one stock. So even though it would have an effect on portfolios, it would not destroy all savings. Given that the JSE had an overall increase, the impact will more than likely be seen in the performance of the funds," she said.

Brown, however, said that at the moment the Steinhoff losses are book losses only, and its shares continue to trade.

Many analysts are hopeful that these book losses will be minimised should the shares start trading up again, he said.

Brown also said institutional investors tended to hold diversified portfolios, meaning that the percentage of individual funds' exposures to Steinhoff will be contained to some degree.

Old Mutual told its unit trust investors yesterday that the funds managed by its multi-managers had been exposed to Steinhoff mainly via domestic equity managers and a small exposure in global funds.

"The impact on multi-asset class funds is limited due to the diversified nature of investing across asset classes. While the funds hold some Steinhoff shares, they have low weighting relative to the benchmark," Old Mutual said.

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