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The headquarters of Steinhoff International Holdings NV stand in Stellenbosch, South Africa on Friday, Jan. 26, 2017. Markus Jooste, former CEO of Steinhoff International Holdings NV, is at the center of the accounting scandal that’s wiped some $14 billion off the retailer’s market value and roiled the wealthy enclave of Stellenbosch, where many prominent business leaders live, work and play. Photographer: Waldo Swiegers/Bloomberg(bloomberg)
(Bloomberg) -- A company linked to executives of Steinhoff International Holdings NV bought South African forestry plantations in 2001 and then sold them to the retailer three years later for more than five times their original value, documents show.
Steinhoff, which plunged 96 percent after disclosing accounting irregularities and Chief Executive Officer Markus Jooste quit in December, commissioned PricewaterhouseCoopers LLP to investigate its finances and has said restatements may have to go back to at least 2015. The forestry deal is similar to car dealership transactions Steinhoff carried out in 2007 where it bought properties including in Johannesburg from companies linked to Jooste at a multiple of their initial value.
“There may well be deals that ought to be probed, prior to 2015,” said Ron Klipin, an analyst at Johannesburg-based Cratos Capital. “The focus should also be on potential conflict of interests.”
Steinhoff declined to comment on the forestry transactions, saying it is awaiting the outcome of the PwC probe.
Read more here about Steinhoff’s car dealership transactions
Since December the global retailer has been selling assets and trying to persuade creditors owed more than 9 billion euros ($10.6 billion) not to force it into insolvency. With the equivalent of almost $17 billion having been wiped off its market value, the saga has become one of South Africa’s biggest-ever corporate scandals.
Steinhoff’s venture into forestry came shortly after Jooste, 57, became managing director in 2000. The company began buying assets to produce the timber needed for the furniture it sold, annual reports show.
Steinhoff agreed in 2001 to pay 15.8 million rand ($1.1 million) for trademarks, vehicles and equipment owned by forestry companies Thesen & Co (Pty) Ltd. and Thesen Properties (Pty) Ltd., sales agreements seen by Bloomberg show. The deal did not include any Thesen plantations and instead Thesen sold 55 properties to Malenge Sawmills (Pty) Ltd., which took a loan from Steinhoff to help with the 29.5 million-rand purchase, according to tax court documents and sales agreements seen by Bloomberg.
Steinhoff managed the plantations that Malenge bought. In 2004, Steinhoff bought 53 of those plantations from Malenge, by then known as Kota Sawmills (Pty) Ltd., for 159.7 million rand, court documents and company minutes seen by Bloomberg show.
Between 2001 and 2004 the following Steinhoff executives at times served as directors of Malenge and/or Kota -- Stephanus Grobler, Frederik Nel, Jan van der Merwe, Gary Chaplin and Danie van der Merwe, who has been acting CEO of Steinhoff since December. Chaplin and both Van der Merwes resigned from Malenge on May 31, 2001, while Grobler and Nel stayed on, according to corporate filings and company minutes seen by Bloomberg.
Steinhoff said in its 2004 annual report that all directors had no conflicts of interest with the company that needed to be disclosed.
“It certainly seems apparent that there were fundamental conflicts of interest, which were not disclosed sufficiently or at all,” said Mark Hodgson, a Cape Town-based analyst at Avior Capital.
Chaplin said he resigned from Malenge before the transactions were executed and wasn’t aware of their details. Jan van der Merwe didn’t respond to questions sent by text message and didn’t return phone calls.
“The PwC investigation into Steinhoff has an open mandate to identify transgressions and those responsible,” Steinhoff said, adding that it was also commenting on behalf of Danie van der Merwe and Nel. Grobler declined to comment, citing the PwC probe.
Kota sold the plantations to Steinhoff in 2004, recording a 125.6 million rand profit for that financial year, shortly after entering a funding agreement with Mayfair Speculators (Pty) Ltd., of which Jooste was the sole director. Kota listed Mayfair as a company to which it was making loans, some of them interest free, according to its financial statements. Jooste’s lawyer, Callie Albertyn, didn’t respond to emailed questions or return a call made to his office.
Steinhoff said in its half-year results to March that PwC is working to identify all transactions that weren’t done at “arms length” or at market-related prices and a final report isn’t due until the end of the year. Having had to impair some assets involved in questionable transactions, Steinhoff wrote off 12.4 billion euros in the first half and declared a record net loss of 621 million euros.
Between 2001 and 2004, Kota was wholly owned by Switzerland’s Fihag Finance Handels AG and Fihag was also one of Steinhoff’s biggest shareholders, company filings and annual reports show.
Fihag was owned by Steinhoff’s founder, Bruno Steinhoff, until he said he sold it in 2003. His daughter, Angela Kruger-Steinhoff, was one of its directors over the same period. She is currently a member of Steinhoff International’s supervisory board. Steinhoff also said Kruger-Steinhoff couldn’t comment because of the PwC probe. Fihag didn’t respond to queries.
After these early deals, Steinhoff went on to buy assets ranging from furniture retailers in South Africa to discount chain Poundland in the U.K., Conforama in France and Mattress Firm in the U.S. South African billionaire Christo Wiese became a major shareholder and Steinhoff’s chairman after a series of deals that started in 2014. He’s now suing the retailer for 59 billion rand over losses he incurred as a result of the disclosure of accounting irregularities. Steinhoff has said it’s assessing the claims and will determine “the appropriate course of action.”
The company behind the forestry transactions and the car dealership sales still exists. It’s now called Kluh Investments (Pty) Ltd., with Kota having changed its name again in 2007, and Jooste’s son-in-law Stefan Potgieter is its sole director. He’s also the only director of Mayfair Speculators. Potgieter didn’t respond to queries.
(Updates with location of car dealerships in second paragraph.)
--With assistance from Samuel Dodge.
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