Steinhoff in KAP sale to shore up its balance sheet

Steinhoff International Holdings NV is seeking to boost the amount raised from asset sales to about $1.4 billion as the embattled global retailer strives to shore up its balance sheet.

The owner of Conforama in France and Mattress Firm in the US is selling about R3.8 billion ($322 million) of shares in South Africa’s KAP Industrial Holdings Ltd, adding to disposals including stock in investment holdings company PSG Group and a private jet.

Steinhoff said Dec. 5 it had uncovered accounting irregularities and that chief executive officer Markus Jooste quit, leading to a 90% plunge in the share price and emergency talks with lenders.

“This looks well managed and KAP will be very happy to see Steinhoff selling in an orderly way that improves KAP’s spread,” Mark Hodgson, a Cape Town-based analyst at Avior Capital Markets, said by phone.

“It’s better sooner than later for Steinhoff.”

The fund-raising initiatives are enabling Steinhoff to buy time from creditors as the Frankfurt-listed company struggles to boost its finances in the wake of the stock-price crash.

The retailer, which also owns Africa’s largest clothing chain Pep, said earlier this month that its near-term liquidity needs have been met and that the company is in the process of redeeming a domestic medium-term note program.

The shares gained as much as 7% in Germany on Tuesday, and traded 1.3% higher at 0.30 euros at 11:38 a.m. local time. KAP, in which Steinhoff has been a shareholder since 2005, declined 2.1% to R8.32, valuing the company at R23.9 billion.

Steinhoff will use the proceeds of the KAP sale to refinance or redeem South African debt, one of the plans the company is pursuing to strengthen its finances.

The shares will be offered at a reference price of R8.50 each, the closing level on Monday, joint-bookrunner Standard Bank Group said in a statement.

The company has appointed PwC to investigate its finances ahead of restating accounts dating back to 2015, and has referred Jooste to South Africa’s anti-graft watchdog.

The auditors are focused on certain off-balance-sheet structures and deals with related parties and is likely to find that some assets, revenue and profit figures have been overstated, Steinhoff said on March 1.

The sale of shares in PSG raised $931 million over two rounds., while the disposal of a 17% stake in French online retailer Showroomprive and a flagship store in Vienna generated a combined 139 million euros ($171 million).

KAP, a Stellenbosch-based supplier of industrial products such as timber and chemicals, said last month it’s scrapping two business deals with Steinhoff to distance itself from the company.

An agreement to share corporate-services including legal and investor relations ended on March 1 and an arrangement to co-rent office space will run until the end of the month.

Steinhoff’s stake in KAP will fall to 26% from 43% as a result of the placement.

“Steinhoff continues to view KAP as a compelling investment case, especially in view of recent events in South Africa and the prospect of improving economic conditions,” said the company, referring to the replacement of former president Jacob Zuma with Cyril Ramaphosa.

Read: Steinhoff leaks show how former CEO conspired with other executives: report

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Steinhoff in KAP sale to shore up its balance sheet