Steinhoff, the world's biggest furniture maker after Ikea, is imploding amid suspicions the company may have misstated billions of euros in revenue in a manner analysts allege resembles the 2001 Enron scandal that resulted in the US firm's bankruptcy.
"We found their acquired businesses are struggling but net income has been artificially propped up by a massive web of undisclosed related party transactions," the US securities research firm Viceroy Research said in a report on Wednesday.
As of 4.30pm UAE time on Thursday, Steinhoff's stock had fallen 83.5 per cent in two days in Frankfurt, Germany, where the company has its primary listing.
On Tuesday, Steinhoff, which is also listed in Johannesburg, announced it would release its next set of results unaudited, which it said was due to an ongoing investigation by German authorities. The firm, which employs 130,000 people worldwide and is run from South Africa, had reported €17 billion (Dh73.56bn) in revenues at its June filing this year.
With the auditing firm Deloitte refusing to sign off on the results, fear quickly spread that the company had engaged in "round tripping" - slooshing money from one account to another to appear as revenue inflows. In a statement Steinhoff said its auditors “had not yet finalised their review of certain matters and circumstances, most of which were raised by the criminal and tax investigation in Germany”.
Caught up in the disaster is virtually every institutional investor and fund accessing the Johannesburg Stock Exchange (JSE), where Steinhoff is co-listed.
One of the hardest hit will be South Africa's Government Employees Pension Fund (GEPF) that administers the retirement benefits of millions of state employees. Thus far it has lost around 12bn rand (Dh3.22bn) on its Steinhoff investment, the GEPF has said.
In addition, in recent years Steinhoff has acquired a string of struggling retail brands and then seemingly turned them around. For instance, last year it bought the troubled UK budget retailer Poundland for £597 million (Dh2.93bn).
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Analysts suspect the firm used a complicated chain of subsidiaries around the world to make it difficult for investors to determine Steinhoff's true value and income. "The rip-off is complex because that is how it is kept hidden," said the economist Reg Rumney in a Facebook post. "That was the case with Enron, and Steinhoff is being accused of similar financial malfeasance."
The company owns 40 different chains worldwide and more than 10,000 stores throughout the world. Assets include the US' biggest mattress retailer Mattress Firm, the African textile discounter Pepkor and big furniture chains such as Conforama in France and POCO in Germany.
Now headquartered in the Netherlands, Steinhoff was founded in what was then West Germany in the 1960s as a furniture maker. In the 1990s it expanded into South Africa, where it acquired timber plantations and set up manufacturing operations.
Listing on the JSE, it used capital raised to build an international retail empire. Steinhoff became a must-have share for investors in the JSE, and later shifted its primary listing to Frankfurt.
In the wake of the unfolding collapse, the Steinhoff chief executive Markus Jooste resigned this week, saying in an open letter that he apologised for his "mistakes".
"Now I have caused the company further damage by not being able to finalise the year end audited numbers and I made some big mistakes and have now caused financial loss to many innocent people," Mr Jooste said.
"It is time for me to move on and take the consequences of my behaviour like a man. Sorry that I have disappointed all of you and I never meant to cause any of you any harm."
A spokesman for Steinhoff declined to comment but referenced instead the firms' latest statement. The company said it planned to raise at least €1bn from an asset sale to boost liquidity.
It also said it was also considering the “validity and recoverability” of certain non-South African assets of the company that amounted to about €6bn, without giving further detail, Bloomberg reported.
"One of the reasons we owned Steinhoff was because of the management's ability in sweating their assets," Michael Treherne, a fund manager at Vestact in Johannesburg, told Reuters.
"That has now changed, management has turned out to be a liability."