Battling Edcon has begun to restructure its loans amid a tough retail environment and constraints brought on by its debt burden.
The retail group, which owns fashion chains including Edgars, Jet and Legit, was considering the sale of non-core assets to repay debt as it announced weaker credit sales in the year to March.
Edcon chief executive Jürgen Schreiber said he did not foresee an announcement soon on the proposed asset sales.
The company, which owns more than 1 500 stores, named Goldman Sachs and Houlihan Lokey as advisers as it started talks with bank lenders and 2019 noteholders on capital-restructure plans. The talks include “new debt financings and/or transactions involving our existing debt”, the company, owned by Bain Capital Partners, said.
“These discussions are proceeding constructively, but there can be no assurance at this time that they will be successful,” it said.
Repaying
Edcon needs to start repaying about R4.5 billion of debt denominated in euros, dollars and rands next year, with another R20bn due by 2019, according to data.
Edcon’s credit sales fell by 8 percent for the year to March as consumers struggled with rising high unemployment and rising electricity tariffs.
The negative credit sales growth across all the divisions had stifled meaningful growth of the business, the company said.
Retail sales increased by 2 percent to R27.5bn in the 52 weeks to March 28, the company said.
That compares with a 5.1 percent gain a year earlier.
However, although cash sales rose 11 percent, credit sales fell 8 percent with South Africans hesitant to spend money they did not have.
Chris Gilmour, an analyst at Absa, said the sales performance showed continued tightening of credit extension conditions and that cash sales growth was key for the group.
Edcon’s e425 million (R5.64bn) of bonds due June 2019 dropped to as low as 15.2c on the euro from 37.7c at the start of the year. The notes yesterday traded at 25.1c.
The retailer said it had entered into discussions with its bank lenders and 2019 noteholders about new debt financing and transactions involving its debt, but did not give details.
Concerns grew about Edcon’s ability to repay bondholders after Morgan Stanley published a note in September supporting a short position of the company’s debt, saying that the group’s capital structure was “unsustainable”.
Edcon said in February that it was carrying out a cost-saving drive that might result in job cuts at its head office, a move that would reduce operating costs and help it improve margins further as consumer spending remained sluggish.
Schreiber, who will step down as chief executive in August to join a non-South African company, said that Edcon was not planning any new major restructuring that could result in job losses.