Enterprise Television- Steinhoff Africa Seeks to Limit Damage from Pepkor Share Plan
Steinhoff Africa Retail will be advised by the end of next month how much it may need to pay to settle a controversial management-incentive plan devised by a company formerly owned by South African billionaire Christo Wiese.
The operator of clothing chains including Pep and Ackermans disappointed investors in May when it booked R500 million ($37 million) in charges related to the arrangement, a hangover from when the company was still part of scandal-hit retailer Steinhoff International Holdings.
The plan was put together in 2011 by Wiese’s pan-African Pepkor, which was bought by Steinhoff in 2015 and now makes up the bulk of Steinhoff Africa.
According to Chairman Jayendra Naidoo, Star, as the company is also known, hired Cape Town-based law firm Bowmans to investigate to what extent the retailer is liable for the deal, which allowed 44 Pepkor managers to take out loans to invest in the business that were guaranteed by the company. It expects to receive the findings in six weeks at the latest.
“So far, we’re just saying there’s a risk and we’ve taken a provision,” Our stance is clear: to recover the loans and find a sensible way to mitigate the risks. We are mindful of the fact that not everybody is in a position to afford to pay those loans.”
The stock plunged when Steinhoff, which holds a 71 per cent stake, reported a hole in its accounts in December, even though Star’s own financials were given the all-clear.
More recently, investor confidence has been eroded by an unseemly spat between Star management and the founders of Tekkie Town, a South African shoe chain that Steinhoff bought two years ago.
Star shares rose 0.9 per cent to R16.64 as of 2:53 pm in Johannesburg, paring its decline since the Steinhoff financial crisis erupted to 32 per cent.
Pepkor’s incentive plan was conceived because, as a closely held business, its executives couldn’t buy shares on the open market and therefore couldn’t participate in the growth of the retailer. To resolve the matter, a company called Business Ventures Investments was formed in which managers could invest, and that in turn bought a stake in Pepkor.
Some managers bought into BVI with their own money, while others took loans from Pepkor’s finance arm and FirstRand’s Rand Merchant Bank. The RMB debt was guaranteed by Pepkor.