New York - The mysterious short seller who flagged financial irregularities dogging Steinhoff [JSE:SNH] has stepped out of the shadows.
Fraser Perring, a former British social worker who founded Viceroy Research, said in an interview Wednesday in New York that he and colleagues Gabriel Bernarde and Aiden Lau were putting finishing touches on a research report questioning Steinhoff’s financials when the South African retail giant said December 5 it would conduct a probe of its accounting.
The next day, hours after the retailer announced that Chief Executive Officer Markus Jooste had resigned, Viceroy tweeted a link to its 37-page report detailing how Steinhoff had used off-balance-sheet entities controlled by current and former company insiders to obscure losses and inflate earnings.
Its shares plunged more than 80% over the next few days and Moody’s Corporation cut Steinhoff’s debt to junk.
"I view Viceroy’s quality of work as second-to-none," said veteran short seller Marc Cohodes, who considers Perring, 44, a friend. He “should be respected, he should be taken seriously, and if he’s got a concern about something, people should pay attention."
The Steinhoff shock waves reverberated throughout world financial capitals. Four of the biggest US banks - JPMorgan Chase & Company, Bank of America, Citigroup and Goldman Sachs Group - disclosed more than $1bn of loan losses tied to the retailer.
Global lenders had more than $22bn in total exposure to the firm at the end of March.
Rumours that Viceroy had targeted other companies sparked a panic last week in South Africa that wiped out more than $3bn from the value of property stocks and fuelled an intraday decline of as much as 10% in shares of the country’s biggest generic drug maker, Aspen Pharmacare Holdings.
Later this month, Viceroy will identify at least one South African company whose shares are overvalued, Perring said in the interview, declining to elaborate.
Perring, who splits his time between New York and Britain, said he started shorting stocks while still working as a child-protection officer for the Lincolnshire County Council. He made more money in his first three months as a full-time investor than he did during his previous 10 years in social work.
He said he began collaborating with Bernarde and Lau in 2016 after learning that he and the pair, both 23 year olds based in Australia, were researching the same company.
Steinhoff didn’t figure prominently in Perring’s research until the retailer decided to acquire Mattress Firm for $64 a share, more than double the closing price on the day the deal was announced, he said.
Perring said he already had considered Mattress Firm a potential short and was stunned to see Steinhoff’s offer price.
"Either the market was undervaluing it by 100%, or Steinhoff was overpaying by 100%,"Perring said. "And if it’s too good to be true, something is up."* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER