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Moody’s: Steinhoff rating reflects ‘substantial risk’ of default

The company is fighting for survival following its disclosure of alleged fraud in Germany that has wiped billions from its market value.

FILE: Moody's Ratings agency. Picture: Facebook.

JOHANNESBURG - Rating agency Moody’s says it’s downgraded Steinhoff’s debt deeper into “junk” territory and warned further downgrades could follow due to mounting cash flow problems at the retail group.

The company is fighting for survival following its disclosure of alleged fraud in Germany that has wiped billions from its market value.

The agency has cut its rating for Steinhoff International Holdings to Caa1, seven notches into junk.

Steinhoff, the owner of many European and US brands, told investors in December it was losing credit lines from lenders over the scandal.

This was after veteran CEO Markus Jooste quit and the company came under scrutiny from local and overseas regulators.

Moody’s, which had already downgraded Steinhoff’s credit rating earlier in December, says the new rating reflects a “substantial risk” of default.

Steinhoff has $2 billion of term loans maturing between 2018 and 2020, and the interest rate payable on the loans is expected to soar to around 250 to 280 basis points, above the benchmark lending rate of European banks following the downgrades.

The company has yet to explain in full what has been called “accounting irregularities”.