Johannesburg - Stuttafords International Fashion Company needs fresh management and a new debt structure to survive, according to Ellerine Brothers, one of the largest shareholders in the ailing South African department store chain.
The investor’s call comes as creditors owed R836 million met yesterday to vote on a business rescue plan that may have cost unsecured suppliers, including Estée Lauder, L’Oréal and Adidas, about 77 percent of what they are owed. The proposal would also allow the business rescue sponsors, which include existing management, to acquire a stake for R10.3 million. The vote was postponed until March 6.
In a letter to creditors handed out at the meeting, Ellerine said it wants to be the sponsor of a new rescue plan that “will offer more to creditors than the one that’s been proposed.” Ellerine, which owns a 26.4 percent stake in Stuttafords’ parent company, has also approached “more than one” potential buyer.
“It’s undesirable to keep the existing management in such a powerful position when the business has to be taken into a new direction in order to survive,” Ellerine said. Stuttafords was put into business rescue in October after the 159-year old retailer became a casualty of a slump in South African consumer confidence amid high unemployment, inflation and rising interest rates.
Edcon Holdings, owner of the Edgars fashion chain and the country’s biggest clothes retailer, earned a reprieve last year when US owner Bain Capital Partners ceded control to creditors, while Woolworths Holdings last week posted its first decline in half-year profit since 2008. Sponsor Ellerine would invest R12 million in Stuttafords International for a 76 percent stake, with the remaining 24 percent to be held by Stuttafords’ parent company.
The Ellerine-proposed rescue includes a plan to sign on a new senior manager within two months and sets out an 18-month period to meet performance targets and pay creditors back. Should Ellerine find a buyer before then, it will aim to pay creditors earlier.
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The plan is conditional on Nedbank Group, Stuttafords International’s lender, agreeing to the debt restructuring terms and on Nedbank, or another lender, giving the retailer a R60 million loan facility so that Stuttafords can operate.
Ellerine chairman Eric Ellerine has experience with failing companies. His South African furniture retail chain Ellerine Holdings went out of business in August 2014 after parent company African Bank Investments failed.
According to the letter, Ellerine and many of Stuttafords’ creditors were not consulted on the earlier proposed business rescue plan before it was submitted and so it asked for a postponement.