JD Group, South Africa’s largest publicly traded furniture retailer and a provider of unsecured loans, is backtracking on plans to sell more bonds this year as lending growth stalls amid flagging sales.
The company, which six months ago said it wanted to issue debt in the second half, probably would not sell bonds again this year, Bennie van Rooy, the chief executive of its financial services division, said yesterday.
The yield on JD Group convertible rand notes due in June 2017 has jumped 253 basis points since March. The yield premium over dollar bonds in the JPMorgan Chase CEMBI financial index has widened by 121 basis points. The shares have fallen 34 percent this year, the worst performer in the JSE’s general retailers index, which has dropped 11 percent.
JD Group’s full-year net income fell 26 percent as provisions for bad loans surged 73 percent. The company joined Capitec Bank and African Bank Investments in setting aside more money for impairments as retail sales in South Africa rose at the slowest pace in eight months in June amid stuttering growth and rising unemployment. South African loans fell 15 percent in the first quarter after increasing 9.3 percent in the previous three months, according to National Credit Regulator data.
“Issuing bonds now would be at more unfavourable terms,” Asief Mohamed of Aeon Investment Management in Cape Town said yesterday. “If conditions don’t improve, it could force them” to sell shares to existing investors later on.
JD Group set the initial price to convert the bonds into equity at R55.80, a 30 percent premium to the share price on the day the offer was announced last August. The stock gained 0.37 percent to close at R29.50 yesterday.
The rand was bid at R9.9266 to the dollar at 5pm yesterday, down 2.36c on the day for a loss this year of 14 percent. Yields on 10-year government bonds fell 6 basis points to 7.86 percent, compared with 6.79 percent at the end of last year.
As part of JD Group’s R8 billion note programme, the company issued two bonds in April, R450 million due in April 2016 and R300m of securities that mature two years later.
Cash generated from the Johannesburg-based company’s operations increased to R1.6bn in the 12 months to June, the company’s new fiscal year-end, compared with R777m in the 10 months through June 2012. JD Group makes 84 percent of its operating profit from its consumer finance division.
“Based on our disclosed maturity profile, the slowdown in the growth of unsecured loans and the cash flow generation, we are unlikely to issue any new bonds in the 2013 calendar year,” Van Rooy said last week.
The company was considering selling bonds in the second half to fund property developments and loan book growth, he said on March 22.
Mohamed said: “It would be unlikely JD Group would get a bond off the ground in the current environment at rates that would be acceptable to them.”
African Bank Investments, which owns South Africa’s largest provider of unsecured loans and a furniture retail unit, said it planned to raise R4bn in equity to strengthen its balance sheet after an increase in bad debts.
Capitec Bank, the second-biggest microlender, said in July that growth in new loans was stalling as consumers grappled with rising unemployment and increased costs for fuel and power. – Bloomberg