Steinhoff gets a breather from Reserve Bank

The Reserve Bank (Sarb) has settled part of its dispute with the Ibex group of companies, formerly Steinhoff, releasing R9bn of funds to pay foreign creditors that the Bank blocked in July.

This comes after it reneged on its earlier approvals to allow the money to flow abroad. But the Bank still intends to go back to court to challenge its own decision to approve the transactions on the grounds that the approvals should never have been granted and the (unnamed) bank official who granted them was wrong to do so.

Separately, the high court has also allowed one of Steinhoff’s foreign creditors, Silver Point Capital, to intervene in the Ibex/Steinhoff application to review the Bank’s May 2023 decision to block a separate R6bn due to be paid to foreign creditors. This is on the grounds that it was allegedly linked to historic Steinhoff exchange control contraventions. The R6bn has since been forfeited to the state, despite the pending review application and, according to Steinhoff, in direct breach of an undertaking to provide Steinhoff with “reasonable prior notice” of any forfeiture decision.

The Bank’s decisions to block these funds flowing out of SA raised market concern that it could deter foreign investors and bankers from lending to SA companies for fear the bank might arbitrarily stop them repatriating money to service their bank-approved loans. Its plan to institute a self-review application to the courts to let it reverse its own foreign exchange approvals could well add to such concern. The Bank granted Ibex’s SA entities approvals to pay more than R30bn over the next few years to foreign financial creditors who agreed in 2019 to extend the maturity of their loans to the Steinhoff group of companies, helping to avert uncontrolled liquidation of the group that could have led to the loss of up to 50,000 jobs in SA.

That supported the Steinhoff restructuring in which €1.7bn was paid to Steinhoff’s shareholders and other creditors and a further R28bn to SA banks before any payments to the foreign creditors became due.

The Bank’s financial surveillance department (the old exchange control) granted a series of approvals as part of the restructuring in 2018/2019 and again as recently as April this year, to allow the foreign creditors to be paid back interest and capital on their €10bn (about R190bn) debt after other creditors were paid.

The R9bn the Bank blocked in July — it has now agreed to release it — were proceeds of a sale by Ibex/Steinhoff of Pepkor shares that relied on the Bank’s 0433 exchange control approvals to meet obligations to foreign creditors. The Bank was fully aware and approved of this, Ibex told the court when it launched an urgent application to halt the Bank’s decision to renege on approvals in July. In the settlement agreement,

signed by Bank deputy governor Fundi Tshazibana and Ibex CEO Louis du Preez last month, the bank agrees to allow Ibex to make R9bn of the foreign payments due under the 0433 approval, excluding interest accrued since the blocking order. However, the agreement says: “It is recorded that the Reserve Bank contends that the 0433 approval is unlawful and invalid in its entirety ... on the ground that the Reserve Bank official who granted the approval did not have the power to do so, and that the Reserve Bank intends to institute a selfreview application to review, set aside and declare invalid the 0433 approval.”

Judge Sulet Potterill granted the order, making the settlement agreement an order of court, and instructed the Bank to file an answering affidavit to the main case challenging the Bank’s blocking order, as well as to file its own self-review application.

In the other case concerning the blocked and forfeited R6bn, she ruled against the bank, with costs, and supported the application to intervene by Silver Point Capital, which was supported by Ibex/Steinhoff.

The Bank had argued that only Ibex had the legal standing to challenge the blocking order over the R6bn forfeiture order but judge Potterill said this was absurd. “SPC as financial creditor has an aggrieved legal complaint; it had an expectation that Sarb would honour its commitments,” she wrote in her judgment. “Steinhoff’s management has in the past six years been focused on recovering maximum value for all its stakeholders in the fallout from the mismanagement that was discovered in December 2017.

“SPC, as other significant financial creditors, has co-operated in the process to stabilise, restructure the debt and to settle claims against it,” Potterill wrote. “Ibex, as do SPC, affirm that the restructuring of the debt was made in reliance on Sarb’s approvals. If Sarb had not approved these payments then SPC would have enforced its debt at the time and not have agreed to an extension of being paid or any restructure.”

Steinhoff’s previous management led by Markus Jooste perpetrated SA’s biggest fraud in creating fictitious offshore shell companies to inflate profits and hide losses. The full extent emerged only in late 2017.