Plumbing depths of #Steinhoffscandal

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Although the whirlwind of financial scandal that has engulfed Steinhoff International will apparently have little impact on public servants' pensions, questions have arisen about who should take responsibility for the crisis. Described as the "biggest corporate disaster that has ever hit South Africa", the fiasco at Steinhoff has triggered a lot of investigations into how more than R200 billion was lost. Finance Minister Malusi Gigaba has ordered the establishment of a commission to investigate the matter. This follows a meeting he had with stakeholders at the Johannesburg Stock Exchange on what this means for the country. Steinhoff’'s stock has continued to haemorrhage in the past three weeks during which it was hit by an ‘"accounting irregularity" scandal.

This has happened despite the announcement of the appointment of Danie van der Merwe as acting CEO following the resignation of South African billionaire Christo Wiese.

According to reports, Wiese sold R1.1bn worth of stocks in Shoprite, bringing the amount sold since the beginning of the fiasco to R3.3bn.

While many investors are reeling from the financial implication of the scandal, the Government Employee Pension Fund, which together with the Public Investment Corporation owned R28bn in Steinhoff, has given an assurance that the pensions of civil servants will not be affected.

The GEPF said its investment made up only 10% shares in the company and was only 1% of the fund's total asset.

“It is important to note that notwithstanding the collapse in the Steinhoff share, the GEPF portfolio remains financially healthy because of its diversified nature.

Read: Steinhoff fallout could hit SA hard

"It is also important to note that GEPF members' benefits will not be changed by these developments, given that the GEPF is a defined benefit pension fund,” the fund said in a statement.

Economist Ian Cruickshanks said that in the future investors should make sure that they diversify their investments to ensure that they don't lose out on their money if such an incident happens again.

“The first requirement is to have your pension in a diversified fund; you don’t want to be in a fund that only has a few stocks. You want to invest it in a fund that has all sorts of investments, so that any single disaster can have a limited impact on each individual member.

"If you say they have lost billions then, yes, compared to the value of the pension funds, it is not that big,” he said.

“Don't put all your eggs in one basket and don't try to do it yourself; go to professional investment managers, they don’t always get it right as is the case here, but they have a better chance than trying to cover all investment markets on your own. That is why it is not going to hurt individual pensioners or other beneficiaries to a large extent.

“Who will be impacted by this scandal? The funds themselves will be most impacted, they will have less in reserves. Let's say there is another disaster or a number of them, then maybe then it would have an impact.

"At the moment, this one disaster is not enough to have that big an impact on the individual pensioner or investor.

“A scandal of this magnitude shakes up the pension fund industry. Should it shake up the auditing profession? Yes, after all the auditors were the ones signing off the accounts until eventually they decided they wouldn't.

"What it says is that there has to be tighter controls over the auditing of pension fund assets over time.

“And we always point fingers at the government. Now hold on, private sector is not without blame as well.

"What we have to make sure is that we clamp down on these sorts of events and deal very harshly with the people who broke the law and we make sure that we are not seen by the rest of this world as a morally bankrupt society.

"The foreign investors look at us and say, 'I don’t like your government, I don’t like the deficits you are running I think that you mismanage your state-owned enterprises' - and if you are mismanaging private sector companies, as Steinhoff was doing then you become an investment no-go area.

Read more: #Steinhoff scandal is 'clear mismanagement - corruption at its best'

"Then the country can’t have access to funds for development to grow the economy and that would be the tragedy.”

Magda Wierzycka, CEO of asset management company Sygnia, said that before parties who contributed to the demise of Steinhoff could be identified, it was necessary to establish how the mismanagement had happened.

“Although pensions are guaranteed because government employee pension funds are benefit pension funds, what we mustn't forget is that what will be affected is the ability to grant future pension increases.

"Because R14bn was lost, it means that money was lost that would have enabled them to grant higher pension increases. It is not without consequence,” she said.

“We still don't know how this happened, we still don't know all the facts, but what we do know is that the hole in the balance sheet is massive.

"We know that they have put forward fraudulent numbers, the revenues, the profits, the expenses, and so on.

"These were the big numbers they played around with and we know they have done it over a number of years.

"The first thing one need to establish is exactly what has happened within Steinhoff International, who should have known, what and who should be held accountable."

Weekend Argus