Steinhoff shares drop 80% this week after investigation, CEO departure

Steinhoff shares drop 80% this week after investigation, CEO departure

Another trader in Johannesburg said there was a growing sense that this week’s approximate 80 percent share price tumble had triggered “bottom fishing” by buyers speculating the stock was at a level from which it could only go up.

“There does seem to be a little bit of bottom feeding coming in here, we are starting to see in the last half hour or so,” Independent Securities trader Ryan Woods said.

Steinhoff’s problems deepened on Thursday after Moody’s cut its credit rating and raised concerns about its governance.

“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,” Moody’s said in a statement.

It cut Steinhoff’s debt to B1, or highly speculative, from Baa3, the lowest investment grade rating.

Steinhoff admitted to accounting problems earlier this week and its veteran chief executive Markus Jooste quit, raising questions about its liquidity and future.

A lower credit rating means the borrower usually has to pay more to borrow from investors and can reduce the value of its existing debt, forcing some holders to sell.

Steinhoff used debt to fund an acquisition strategy that turned it from a South African furniture group to an international retail empire.

The company has been under investigation for suspected accounting irregularities by the state prosecutor in Oldenburg, Germany, since 2015.

Four current and former Steinhoff managers are suspected of having overstated revenue at subsidiaries, German prosecutors said this week.

Steinhoff has denied any wrongdoing in relation to the German allegations. It has not given any details about the “irregularities” it has identified and has sought to reassure investors about its liquidity.

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