Steinhoff Disintegrates As Biggest Shareholder Caught In Margin Call "Death Spiral"

The stock of scandal-plagued retailer Steinhoff plunged for the third consecutive day, bringing its total drop in the past 3 days to over 50%, as its biggest shareholder and former Chairman, Christo Wiese, was caught in a vicious margin call, and increased the amount he has raised from selling shares in various related entities such as food retailer Shoprite Holdings Ltd. to 3.3 billion rand ($259 million) as his net worth continues to disintegrate amid the accounting scandal which some - this website included - have likened to a modern-day Enron.

Christo Wiese: largest Steinhoff shareholder and 4th richest South African

Wiese’s liquidation of assets comes as Steinhoff’s stock extended its drop this month to 93%, fueled by the resignation of CEO Officer Markus Jooste after auditors refused to sign-off on the furniture and clothing company’s 2017 earnings.

Things deteriorated two days ago when the company - whose bonds were recently purchased by the ECB - announced its lenders were pulling credit lines, and added that it isn’t yet able to assess the magnitude of financial irregularities disclosed two weeks ago. Steinhoff also said it didn’t know when it would be able to publish audited results for 2017 and 2016, nor whether additional years will need to be restated, prompting the liquidity exodus.

Meanwhile, the liquidations continues as both the company and its shareholders scramble to obtain liquidity to cover securities thay have margined with company assets. Steinhoff, which is run from South Africa but has its main stock listing in Germany, faces a potential fire sale of its global retail holdings as it battles for survival according to Bloomberg. Wiese, the chairman of Shoprite, sold 1.1 billion rand of the grocer’s shares on Tuesday, according to a statement, following the sale of stock worth 2.2 billion rand in the last week.

Weise is caught in a classical - and accelerating - margin call death spiral, where he has to liquidate increasingly more assets to meet liabilities following the more than 90% decline in the value of his holdings in Steinhoff. In other words, the more he sells, the more he has to sell, and as the chart below shows, he is doing just that.

Meanwhile, a unit of Barclays Africa separately applied for liquidation of a company called Mayfair Speculators Pty Ltd., which owns racehorses, property and Steinhoff shares and is linked to former CEO Jooste, Bloomberg reports. Mayfair is being probed by the bank for moving 1.5 billion rand of assets to its holding company in August ahead of information about Steinhoff’s accounting irregularities being released, according to the documents.

And while both the company and its largest shareholders are caught in a "death spiral" which ends with the stock hitting zero, there is still no news whether the ECB has finally sold its Steinhoff bonds which have a distinct chance of ending up totally worthless.