By TJ Strydom
JOHANNESBURG (Reuters) - Steinhoff International's shares crashed on Wednesday after it revealed accounting irregularities and its CEO quit, shocking investors who had backed the rapid reinvention of a South African furniture chain into an international retail empire.
The company said late on Tuesday that "new information has come to light today which relates to accounting irregularities requiring further investigation" and that billionaire Christo Wiese, its largest shareholder and chairman, would take charge.
Steinhoff said chief executive Markus Jooste, who had been at the helm for nearly 20 years and oversaw its expansion to one of the world's largest household goods retailers, had resigned with immediate effect and consultants PwC would undertake an "independent investigation".
"It's a red flag, this is something very serious," Peter Brooke, portfolio manager at Old Mutual Investment Group, a top 20 shareholder in Steinhoff, said. It also raised wider questions about South African corporate governance and would have a negative impact on the country's assets, he added.
Steinhoff has been aggressively expanding in developed markets since moving its primary share listing from Johannesburg to Frankfurt in 2015, snapping up Britain's Poundland, U.S-based Mattress Firm and Australia's Fantastic.
Steinhoff said Wiese would "embark on a detailed review of all aspects of the company's business with a view to maximising shareholder value", but its South African shares had slumped 67 percent to 14.77 rand by 1241 GMT, after hitting an eight-year low of 13.50 rand in earlier trading, on investor fears.
Steinhoff stock was down by 68 percent in Frankfurt, while its latest bond sold in July fell by more than 40 points.
A spokeswoman for Deloitte Accountants B.V., which signed off Steinhoff's 2016 results, declined immediate comment.
Steinhoff, which said on Wednesday it was postponing the release of its 2017 results until the probe is over, has been under investigation for suspected accounting irregularities by the state prosecutor in Oldenburg, Germany since 2015.
The company has said that related to whether revenues were booked properly, and that taxable profit was correctly declared.
Reuters reported last month that Steinhoff did not tell investors about almost $1 billion in transactions with a related company, despite laws that some experts say require it to do so.
It is unclear what accounting irregularities the company was referring to in its statement on Wednesday. A spokesman declined further comment and attempts by Reuters to contact Jooste were not successful.
There were wider repercussions in the Steinhoff group, with Ben la Grange, chief executive of Steinhoff African Retail (STAR), which includes control of Shoprite, also resigning and STAR shares falling more than 30 percent.
Omri Thomas of Abax Investments, the 15th largest investor in Steinhoff, said because its numbers had been thrown into doubt and there was no immediate prospect of any clarity, it was hard to put a value on the business and this had prompted the severe share reaction.
TAX RATE QUESTIONS
Analysts have long questioned how Steinhoff managed to achieve such a low tax rate. Its tax rate has averaged 12 percent over the past five years -- half the headline corporate tax rate in its main markets and less than half the rates paid by listed competitors including France's Casino, Germany's Metro AG and South Africa's Woolworths.
Experts say such low tax rates can be the result of complex corporate structures which stretch accounting rules and such arrangements are occasionally challenged by courts as unlawful.
"The company recorded a very unusual tax rate of c. 15 percent and also guided that this would be the rate going forward," Juergen Kolb, an analyst at Kepler Cheuvreux, said in a note, adding that if this tax rate was at risk it could also hit Steinhoff's cashflow.
Kolb also raised the possibility that as chairman, Wiese's role could now come under scrutiny too.
Steinhoff, which employs 130,000 people, did not respond to requests for information about what, if anything, Wiese knew about the accounting problems now being investigated.
Investors also told Reuters they are concerned Wiese may be forced to sell shares he bought last year with borrowed money, which would depress Steinhoff's stock further.
Wiese borrowed 1.6 billion euros ($1.9 billion) to buy additional Steinhoff shares through a family trust in September 2016, pledging 3.2 billion euros of his existing holding as security to the investment banks that lent the money.
With the share price plunge taking the security below the value of the loan, Wiese may be required by the financing banks -- Citi, Goldman, HSBC and Nomura -- to post more shares as collateral, or sell part of his holding.
($1 = 0.8459 euros)
(Reporting by TJ Strydom; additional reporting by Tanisha Heiberg in Johannesburg, Tom Bergin, Alex Chambers and Alasdair Pal in London,; writing by Alexander Smith; editing by Tom Pfeiffer and Keith Weir)