Heather Sonn, chairperson of Steinhoff shows integrity as she steps down from the board after acknowledging she was unwittingly involved in irregularities two years ago. But the bigger question is why is this investigation taking so long? Biznews founder Alec Hogg dives into the Markus Jooste leftovers with South Africa’s favourite market analyst David Shapiro. – Vanessa Marks
Welcome to our noontime webinar. David Shapiro, you look like you have been well shorn, I look like I need to be shorn. This lockdown is getting beyond a joke for many people.
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It’s very difficult. I think we miss the personal contact. While I’m quite comfortable here and have got all the computers and access to as much news as I want, I miss chatting to people in the office, the social contact. I find it very difficult.
David, the news coming out of Steinhoff is that the chair Heather Sonn has stepped down with immediate effect because of some irregularity. Now you need to unpack this for us because by now you’d hope the irregularities at Steinhoff would be coming to some end.
We would have thought so, and whoever is remaining at Steinhoff has so much to do. I think Heather came out as one of these people who promised that they would adhere to strong governance regulations and strong governance issues and they would run the companies properly. She discovered when Steinhoff troubles arose in 2017 a transaction that was in the Viceroy report. She’s a director of a certain company. If we start to mention all the companies it’s going to become very difficult to know where you are. So I’m going to try and summarise it. Alec go back two years. What the investigators found was Steinhoff was lending money to certain businesses and those businesses would then bring back the money, or do transactions with Steinhoff. So in one case they were lending money and they were creating a debtor, someone who owed you money. But the money that went to that company would come back and into the income account in some way in some kind of transaction boosting their income. A lot of the transactions were around that type of situation. So they in effect were round tripping their own money to boost their income. What Heather found is that there was one business that she was involved in that entered into a transaction with another company, and she found in that other company was a director who had been named in the Viceroy report. She asked PwC to please investigate this because if that was the case she would have to make certain disclosures. So two years down the line they found that there was some irregularities in that deal. Because she didn’t make the disclosures at the time, she has stepped down as saying I was unwittingly involved, and it’s obviously embarrassing for her. It’s difficult to get into the intricacies. I don’t think that really matters but she’s done the right thing by saying she was involved in this company, there was an irregular contract, she was not personally guilty for it but she stepped down.
So a couple of things jumped out at me here. First Heather Sonn is honourable and noble and has done the right thing, which many people involved in Steinhoff failed to do over the years. But the second thing and perhaps more relevant from a broader perspective is that PwC are clearly still investigating this thing.
It’s two and a half years. In the US when Madoff was found guilty of those transgressions, it took three months, he is in jail. Here, it’s two and a half years and Markus is carrying on life, probably normally, I don’t know what’s happening down in Stellenbosch with the lockdown but this should have been put to bed a long time ago and it just shows you how many transactions were involved in that. That raises other issues. You know, what’s the cost going to be, what remains of Steinhoff. Its market cap is only about R4.5bn now, from the hundreds of billions that it was. But still they tried to resurrect it, trying to keep those businesses going. A web of intrigue that only Markus could actually have spun.
Good for Heather, taking the decision that she did however on the other hand I’m sure they’re going to miss her because you don’t need someone who’s been intimately involved as she has been to leave the scene. But you have to understand why. David, Sibanye Gold and Neal Froneman. Neal has always been outspoken but he seems to be more outspoken than normal, particularly in the last few days calling for the end of the lockdown saying that it’s going to cause irreparable economic harm. He wants the mines to get back working again. We’re gonna be talking about a lockdown a lot in this webinar and the one that we have on Thursday. But from an investor’s point of view if the lockdown were to end and clearly the way the ANC is going that doesn’t seem to be likely. But if it were to end would investors celebrate?
Yes, of course, but they would be nervous, but they’ll celebrate. You know everybody’s going to go out there very carefully but they will get their social lives back. We’ve seen it. I’ve got a son in Australia, I’ve got two brothers in Australia and a daughter in America. People are slowly going back to restaurants. It’s under control. The restaurant will only take 10 people instead of 20. Space has been mapped out and you’ve got to book a table in advance. Economic activity and confidence will return. I was listening to Jay Powell yesterday. He was on CBS America and he said only when there’s a vaccine will people feel 100% confident. But in the meantime I think that things will pick up in a slow fashion.
