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Steinhoff Woes Deepen On Credit Downgrade

The plight of global retailer, Steinhoff International worsened Friday morning after it lost its investment level credit rating.

Moody’s ratings agency downgraded the credit standing of Steinhoff, the South African based retailer to junk in the wake of news of massive accounting irregularities.

Prosecutors in Germany are probing these claims and have been for more than two years. The company’s CEO quit this week after Steinhoff confirmed the problems and the auditors refused to sign off on he 2017 results that were due for release on Tuesday.

Moody’s on Thursday said it was lowering its rating on Steinhoff four notches, from Baa3 — its lowest investment-grade rating — to B1, or speculative, also known as junk.

And it placed the company on review for a possible further downgrade.

Steinhoff shares fell more than 40% overnight Thursday after a 60% plus slide on Wednesday.

Steinhoff owns Australian retailers such as Best and Less, Snooze, Freedom, Harris Scarfe and Fantastic Furniture. Banks o these companies and the parent must be worried today about any loans they have with the Steinhoff companies. Moody’s downgrade will focus minds today.

If the parent collapses or is placed in administration, the futures of these Australian retailers will be clouded.

Moody’s analysts said in a note: The downgrade of Steinhoff's ratings and review for further downgrade reflect the uncertainties and implications for the company's liquidity and debt capital structure arising from an announcement by Steinhoff's Supervisory Board on 6 December 2017. The Supervisory Board advised that new information has come to light which relates to accounting irregularities requiring further investigation with the possibility of restatement of prior years' financial statements. This prompted the immediate resignation of the CEO.”

“Given that allegations of accounting irregularities were raised and rebutted in August 2017 and again in November 2017 it calls into question the quality of oversight and governance at Steinhoff,” the firm said.

"Steinhoff's credit profile comprises complex corporate legal structure and financial reporting considerations. This is a feature of rapid expansion by the company through acquisitions. This complicates the assessment of trend lines for credit metrics.

"Moody's review will focus on the findings of Steinhoff's Supervisory Board investigation into accounting irregularities and the consequences for the company's credit profile. Should further details of the accounting irregularities put additional pressure on Steinhoff’s financial condition, this could lead to further downward pressure on the ratings,” the firm added.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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