Steinhoff - Quantifying the damage from the SA ruling
All,
What does the ruling mean for the various loans, in particular the SFHG A1s? On Friday the Western Cape High Court ruled that the SIHPL CPU underpinning the SFHG A1s is void and the company will likely take through the end of this week to give us an update.
The judgement:
- The elements of the judgement that we have read are not in line with commonly accepted western practice. The judge takes issue with the original guarantee, because procedures were not observed by the fraudulent management (this is the tougher bit to argue with), but he also rejects the fact that the CPU is now struck in favour of a newco instead of the original entity and that many creditors are not the same as the originally damaged parties. The judge also does not like the “voluminous” legal documentation and attacks the complexity of the case. We’ve all read these rulings before - but I’ll admit that in my case that is a long, long time ago.
On the ground:
As far as we know, Steinhoff and advisors have been caught by surprise and are studying the path to appeal. The aim, however is unlikely a drawn-out legal battle, but rather the gathering of bargaining chips to re-strike a deal with shareholders. We did not get the sense that outright panic has broken out.
SFHG A1s:
- To set a goal post: In the unlikely event that all sides accept that the SIHPL CPU is and remains entirely void, so that creditors have zero claim agains t SIHPL and supposing that SHIPL shareholder claims gain the entirety of the value accruing to that entity, then the total maximum downside to the SFHG A1s would be a value of 74c/E (by year end on today’s outstanding). But that is extremely unlikely.
- To set another goal post: If nothing happens, we calculate that SFHG bondholders would likely recover 110% (par + accrued) by year-end.
- If a new settlement agreement doubles the shareholder litigation pay-out at SIHPL level, recovery would be 90c/E.
- If shareholder claims and CPU decide to rank pari passu, SFHG A1 recovery would still be above par. In particular this last scenario is interesting, because if the CPU were indeed void due to wrong-doing by management at the time, then the SFHGA1s would be entitled to damages, which would at the very least sit pari passu with those filed by shareholders.
=> The outcome will likely sit between the current arrangement and a pari passu arrangement, since that upside would be years away for shareholders to achieve. Therefore the resulting damage should be between zero (unlikely) and -10 c/E (unlikely). The market seems to agree. We’ve lost a few points - and some time, but that’s likely all.
All ex bondholders:
- To the extent that a settlement between CPU creditors and SIHPL shareholder litigants leaves any additional cash on the table for NV claims (also has shareholder litigants), then value passed up to NV would be shared there and all bondholders would share in that pot except the SEAG B1s and B2s.
- Tranches other than the SFHG A1s, if anything, stand to benefit.
Positioning:
We retain our positions in the SFHG A1s and A2s. Both have been gaining from the increased share price at Pepco recently.
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003