A German investigation into alleged accounting fraud by senior managers at Steinhoff’s European operations couldn’t have come at a worse time for its top shareholder Christo Wiese.

The South African retail magnate is about to split Steinhoff’s African businesses so investors can better judge the value of its faster-growing ones in the United States, Europe and Australia. He thinks doing so will improve returns for shareholders.

But as he forges ahead with the separation next month, news of the fraud probe on Thursday wiped more than $2 billion off the value of Steinhoff’s shares, which are listed in Germany and Johannesburg and were valued at $20 billion on Friday.

“It’s very bad timing for Steinhoff. You obviously don’t want to go into a listing with something like that hanging over your head. It’s a distraction and shareholders might start getting a bit grumpy,” said Tota Tsotsotso, Managing Director at Bataung Capital in Johannesburg.

Wiese, who owns nearly 22 percent of Steinhoff’s shares, said a report on the investigation by influential German monthly Manager Magazin, which implicated Steinhoff chief executive Markus Jooste, was “devoid of any truth”, in comments to 702 Talk Radio on Friday.

SENIOR MANAGERS UNDER SPOTLIGHT

The crux of the allegations is that senior managers at Steinhoff inflated revenue figures by the sale of assets to purportedly external parties, which were actually associated with Steinhoff.

Steinhoff has denied any wrongdoing, saying its own external audit found no evidence it had broken rules in the case which dates back to 2015.

“What does he do? Delay the listing? I don’t think so,” said one banker who has worked with Wiese in the past.

“Remember, their offices were raided over the same issue in December of 2015, a week or so before the Frankfurt IPO and they went ahead with it. This is a minor bump. I’m pretty sure Wiese can get around it,” the banker said.

But Wiese has more than one problem on his hands. The company that is second only to IKEA in Europe’s furniture market and owns Poundland in the UK, Conforama in France and Mattress Firm in the United States, has seen one of its main money-spinners in Europe take a pounding.

TROUBLE FOR NEW LOOK

Shares in investment heavyweight Brait SE, in which Wiese is the top shareholder, have dropped by half in the past year as weak consumer demand and tougher competition in Britain hurt one of its biggest sources of profit, no-frills clothing chain New Look.

In June, Brait, which also owns Virgin Active and grocer Iceland Foods, slashed the value on its books of New Look by about 80 percent to 7.1 billion rand ($546 million). That meant New Look’s contribution to Brait’s net asset value fell to 15 percent from 45 percent, sending New Look’s bonds into freefall.

“New Look has so far been a disappointing trade for the market, and that’s been further challenged by the weak consumer numbers which have been fast evolving,” said Stefan Isaacs, fund manager of the M&G High Yield Bond fund.

Bond investors said the company’s problems have been compounded by the loss of top managers and little evidence that a turnaround plan, that also includes expanding deeper in Europe and cutting costs, was bearing fruit.

Kate Ormrod, GlobalData’s lead retail analyst, said New Look was being overshadowed by other value retailers such as Primark, H&M and Boohoo. “That’s really down to product,” she said. “Fast fashion retailers really have to be on point in terms of when product drops, is it appealing? And I don’t think they’ve quite been on the ball.”

New Look is pinning its hopes on recently named Dumont Lopez as its new chief creative director, who joins next month from Esprit.

CAN LISTING BE A SUCCESS?

If potential backers of Steinhoff’s African businesses can put the problems in Europe to one side, they will be investing in Steinhoff Africa Retail Ltd which will have annual sales of 52 billion rand.

The business is targeting a valuation of around $5 billion and a free-float of at least 20 percent, suggesting a deal size of more than $1 billion.

It is mainly made up of clothing, shoe and textile company Pepkor, but also includes furniture store JD Group and electronics brand Incredible Connection.

The African businesses have been a drag on group earnings due to weak consumer spending, slowing economies and faltering currencies.

Shares in Steinhoff on Friday recouped about 3 percent or only a quarter of the losses suffered the previous session that sent them to their lowest so far in Frankfurt and to levels last seen in 2014 in Johannesburg.

“I thought the share price would jump a lot more but I suppose guys are bit wary and as far as German investors are concerned you’d probably find that they have higher standards on what’s acceptable and what’s not,” said Michael Treherne, a fund manager at Vestact, which owns shares in Steinhoff.

“If they’ve got a slight sense of wrongdoing, German investors would probably shun you and I suppose there’s that potential that they would stay away from the upcoming IPO of the African businesses.”

($1 = 13.0042 rand)