Moody's sees no rating impact from Steinhoff deals

On 18 October 2011, Steinhoff announced it had reached an agreement with KAP, subject to certain conditions, that it would dispose 100% of PG Bison Holdings (Proprietary), Unitrans Holdings (Proprietary) Limited and Steinhoff's raw materials subsidiaries to KAP in exchange for shares that would increase Steinhoff's stake in KAP from its current 34% to 88%.

At the same time, Steinhoff also announced that it has secured an option to acquire shares in JD Group ("JD Group Call Options"), exercisable at Steinhoff's discretion but subject to certain conditions precedent, including regulatory approvals (including Competition Tribunal approval), that could allow Steinhoff's stake in JD Group to increase from its current 32.4% to more than 50% while reducing its shareholding in KAP to 62%. All transactions are to be done through share-swaps with no actual cash being transferred. If both transactions materialise Steinhoff would have control of both KAP and JD Group, thus fully consolidate them.

"While Moody's notes that there is no immediate impact in Steinhoff's ratings from this announcement, we recognise that if all conditions precedent are met and regulatory and shareholder approvals are obtained so that Steinhoff gains control of both KAP and JD Group, that its current leverage (Total Debt to EBITDA as adjusted by Moody's) could experience a modest improvement given the lower leverage of KAP especially.

"To the extent that Steinhoff's leverage improves to closer to three times on a Total Debt to EBITDA and sustainable basis (according to Moody's definition and standard analytic adjustments) - pro-forma with 12 months of Conforama and a full consolidation of KAP and JD Group - we would consider Steinhoff more strongly positioned in its Ba1 rating," the rating agency said.