EDINBURGH — South African asset managers like Coronation, Sanlam and Foord were so blinded by the hero-like status of retail tycoon Christo Wiese and his right-hand man Markus Jooste that they failed to spot signs of trouble at Steinhoff. Instead of reducing exposure to Steinhoff on behalf of their unit trust and other investors, these firms had loaded up pension funds and other portfolios with the stock. With the benefit of geographic distance, short-seller Fraser Perring – who works between the US and Britain – could easily see something was amiss. Perring, founder of shadowy Viceroy Research, released a report on Steinhoff not long after German authorities indicated that they were investigating possible financial irregularities at the company in which he detailed balance sheet jiggery pokery. The Steinhoff share price plummeted as investors were presented with stark evidence of dishonesty in the Steinhoff boardroom and top ranks. In a nutshell, Steinhoff bosses massaged the books so that the company looked like it was making much more than it was. Until now, Fraser Perring has kept a low profile. But, in this interview with Bloomberg, he reveals that his research outfit has other South African stocks in its sights. – Jackie Cameron
The mysterious short seller who flagged financial irregularities dogging Steinhoff International Holdings NV has stepped out of the shadows.
Fraser Perring, a former British social worker who founded Viceroy Research, said in an interview Wednesday in New York that he and colleagues Gabriel Bernarde and Aiden Lau were putting finishing touches on a research report questioning Steinhoff’s financials when the South African retail giant said Dec. 5 it would conduct a probe of its accounting.
The next day, hours after the retailer announced that Chief Executive Officer Markus Jooste had resigned, Viceroy tweeted a link to its 37-page report detailing how Steinhoff had used off-balance-sheet entities controlled by current and former company insiders to obscure losses and inflate earnings. Its shares plunged more than 80 percent over the next few days and Moody’s Corp. cut Steinhoff’s debt to junk.
“I view Viceroy’s quality of work as second-to-none,” said veteran short seller Marc Cohodes, who considers Perring, 44, a friend. He “should be respected, he should be taken seriously, and if he’s got a concern about something, people should pay attention.”
The Steinhoff shock waves reverberated throughout world financial capitals. Four of the biggest U.S. banks — JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. — disclosed more than $1 billion of loan losses tied to the retailer. Global lenders had more than $22 billion in total exposure to the firm at the end of March.
Rumors that Viceroy had targeted other companies sparked a panic last week in South Africa that wiped out more than $3 billion from the value of property stocks and fueled an intraday decline of as much as 10 percent in shares of the country’s biggest generic drugmaker, Aspen Pharmacare Holdings Ltd.
Later this month, Viceroy will identify at least one South African company whose shares are overvalued, Perring said in the interview, declining to elaborate.
Perring, who splits his time between New York and Britain, said he started shorting stocks while still working as a child-protection officer for the Lincolnshire County Council. He made more money in his first three months as a full-time investor than he did during his previous 10 years in social work. He said he began collaborating with Bernarde and Lau in 2016 after learning that he and the pair, both 23 year olds based in Australia, were researching the same company.
Steinhoff didn’t figure prominently in Perring’s research until the retailer decided to acquire Mattress Firm for $64 a share, more than double the closing price on the day the deal was announced, he said. Perring said he already had considered Mattress Firm a potential short and was stunned to see Steinhoff’s offer price.
“Either the market was undervaluing it by 100 percent, or Steinhoff was overpaying by 100 percent,” Perring said. “And if it’s too good to be true, something is up.”