Steinhoff's stock was down by 68 percent in Frankfurt on Wednesday, while its latest bond sold in July fell by more than 40 points, after the company said late Tuesday that "new information has come to light today which relates to accounting irregularities requiring further investigation."

The Johannesburg-based global home retailer also said that chief executive (CEO) Markus Jooste, had resigned with immediate effect and consultants PwC would undertake an "independent investigation."

Jooste was at the helm of the company for nearly 20 years and oversaw its expansion to one of the world's largest household goods retailers. 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, US-based Mattress Firm and Australia's Fantastic.

Peter Brooke, portfolio manager at Old Mutual Investment Group — a top 20 shareholder in Steinhoff — said the resignation was a "red flag" signaling "something very serious." It also raised wider questions about South African corporate governance and would have a negative impact on the country's assets, he added.

A case of tax fraud?

Christo Wiese - Steinhoff's chairman and South Africa's richest man — has taken over as interim executive chairman charged with a review of the company's business. The release of Steinhoff's 2017 results was postponed until the probe is over.

The state prosecutor in Oldenburg, Germany has been investigating suspected accounting irregularities since 2015, looking into whether revenues were booked properly, and taxable profit was correctly declared.

Steinhoff's average tax rate over the past five years has been only 12 percent, which is about 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.

Analysts have long questioned the company's low tax rate, saying it can only be the result of complex corporate structures which stretch accounting rules.

Jürgen Kolb, an analyst with Kepler Cheuvreux said in a note recently that Steinhoff's tax rate was "very unusual" and that any risk to the rate in future could hit the company's cashflow.

Contagion fears

Kolb also raised the possibility that chairman Wiese's role could now come under scrutiny too. According to the news agency Reuters, investors are now concerned that 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 ($1.9 billion) to buy additional Steinhoff shares through a family trust in September 2016, pledging €3.2 billion 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.

uhe/aos (Reuters, dpa)