Steinhoff won’t necessarily go the same way as Enron, but if it is to survive things are going to have to change radically.
“I think it’s clear that this is a business in deep distress,” says Saville. “There are at least three or four issues that have to be worked through.”
The first is getting clarity on the real earnings in the business, which has both income statement and balance sheet implications.
“For the income statement, whatever you’ve been looking at for the last few years is simply the stuff of financial manufacturing,” says Saville. “It’s going to have to be restated. That will transfer into the balance sheet. They also have to bring the off balance sheet stuff onto the balance sheet.”
He adds that there is now no chance of recapitalising the business at its historical multiples. Any recapitalisation will almost certainly require new investors and therefore necessitate a change of ownership.
“The other element is that there are clearly criminal and civil legal actions that could be brought,” Saville concludes. “Steinhoff has issued a whole lot of equity on the back of numbers that are manufactured. The board would have been aware of these structures and they were issuing equity and raising debt on the back of numbers that were simply not true. And that’s criminal.” |
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