Lifeline for Steinhoff subsidiary
Mattress Firm, a US subsidiary of Steinhoff, has secured a new NS920 million credit line from Barclays Bank, which may increase to N$2.7 billion.
The announcement comes amid earlier warnings by Steinhoff that the credit facilities of its 40-odd subsidiaries are increasingly “being suspended or withdrawn by lenders” in the wake of the abrupt resignation of its CEO Markus Jooste, a share price collapse and an independent investigation into its books.
In a media statement, Mattress Firm said the new credit facility shows the group is on a sound footing. It said it would be used for working capital needs and other general corporate purposes.
“The company intends to upsize the facility via an incremental availability feature to a total aggregate principal amount of up to US$225 million,” it said.
“This new credit facility provides independent liquidity and capital to support our strategy, and demonstrates the strength of our business, the value of our assets and the quality of our brands,” stated Ken Murphy, Mattress Firm’s president and CEO.
Steinhoff acquired Mattress Firm for US$3.8 billion in September 2016, in its largest foray into the US market. The mattress and bedding retailer has 3 300 stores in 49 US states.
The Stellenbosch-headquartered furniture and household goods conglomerate's share price has fallen by some 90% since December 5, erasing about N$180 billion in market capitalisation.
At a share price of N$4.63 at 11:58 on Friday, the company' market cap is currently below R20 billion.
Since its share price entered a downward spiral, Steinhoff has been attempting to reassure lenders that its subsidiaries' businesses are fundamentally sound.
About 40 brands in 30 countries fall under the larger Steinhoff umbrella, including Ackermans, Pep and Tekkie Town in South Africa, pan-European home furnishings company Conforama, and German furniture group Poco.
LOCAL STEINHOFF WOES
The CEO of Retirement Fund Solutions, Tilman Friedrich, said the losses were severe when taken on a case-by-case basis per fund.
“In the case of Steinhoff it seems the maximum exposure to this share of any investment manager was 1.5%, a relatively small exposure that most members can still absorb. When you convert such low exposures to an amount, in most instances it still represents a significant loss,” he said.
“The one consolation for pension fund managers should be the fact that prudential investment guidelines place very restrictive caps on the maximum exposure to a single investment,” Friedrich said.
According to him, asset managers invested money in various companies to lower the risk of being exposed to one single company in the event of severe losses.
“Typically pension funds spread their investment across anything between 30 and 100 companies and those are typically large companies,” he said.
With regard to physical property such as shopping malls and industrial complexes, in which pension fund money is also typically invested through companies like Oryx which owns and operates Maerua Mall, strict limitations are also imposed to manage the risk of an investment going bad.
“No pension fund may invest more than 5% of its capital in a single property. It may invest a maximum of 10% of its capital in a company which has a market capitalisation of at least N$5 billion or a maximum of 5% if the market capitalisation is less than N$5 billion,” Friedrich explained.
It is speculated that most pension funds would have had some exposure to Steinhoff since it was in the Top 40 index on the Johannesburg Stock Exchange (JSE).
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The announcement comes amid earlier warnings by Steinhoff that the credit facilities of its 40-odd subsidiaries are increasingly “being suspended or withdrawn by lenders” in the wake of the abrupt resignation of its CEO Markus Jooste, a share price collapse and an independent investigation into its books.
In a media statement, Mattress Firm said the new credit facility shows the group is on a sound footing. It said it would be used for working capital needs and other general corporate purposes.
“The company intends to upsize the facility via an incremental availability feature to a total aggregate principal amount of up to US$225 million,” it said.
“This new credit facility provides independent liquidity and capital to support our strategy, and demonstrates the strength of our business, the value of our assets and the quality of our brands,” stated Ken Murphy, Mattress Firm’s president and CEO.
Steinhoff acquired Mattress Firm for US$3.8 billion in September 2016, in its largest foray into the US market. The mattress and bedding retailer has 3 300 stores in 49 US states.
The Stellenbosch-headquartered furniture and household goods conglomerate's share price has fallen by some 90% since December 5, erasing about N$180 billion in market capitalisation.
At a share price of N$4.63 at 11:58 on Friday, the company' market cap is currently below R20 billion.
Since its share price entered a downward spiral, Steinhoff has been attempting to reassure lenders that its subsidiaries' businesses are fundamentally sound.
About 40 brands in 30 countries fall under the larger Steinhoff umbrella, including Ackermans, Pep and Tekkie Town in South Africa, pan-European home furnishings company Conforama, and German furniture group Poco.
LOCAL STEINHOFF WOES
The CEO of Retirement Fund Solutions, Tilman Friedrich, said the losses were severe when taken on a case-by-case basis per fund.
“In the case of Steinhoff it seems the maximum exposure to this share of any investment manager was 1.5%, a relatively small exposure that most members can still absorb. When you convert such low exposures to an amount, in most instances it still represents a significant loss,” he said.
“The one consolation for pension fund managers should be the fact that prudential investment guidelines place very restrictive caps on the maximum exposure to a single investment,” Friedrich said.
According to him, asset managers invested money in various companies to lower the risk of being exposed to one single company in the event of severe losses.
“Typically pension funds spread their investment across anything between 30 and 100 companies and those are typically large companies,” he said.
With regard to physical property such as shopping malls and industrial complexes, in which pension fund money is also typically invested through companies like Oryx which owns and operates Maerua Mall, strict limitations are also imposed to manage the risk of an investment going bad.
“No pension fund may invest more than 5% of its capital in a single property. It may invest a maximum of 10% of its capital in a company which has a market capitalisation of at least N$5 billion or a maximum of 5% if the market capitalisation is less than N$5 billion,” Friedrich explained.
It is speculated that most pension funds would have had some exposure to Steinhoff since it was in the Top 40 index on the Johannesburg Stock Exchange (JSE).
FIN24
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