Edcon relisting not an option - analyst

File photo: John Woodroof.

File photo: John Woodroof.

Published May 28, 2015

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Johannesburg - South Africa’s largest non-food retailer, Edcon, owner of the Edgars and Boardmans brands, said on Thursday it was in talks with lenders over a capital restructuring as sales continued to rise slowly amid wary consumer spending.

Edcon, with more than 1 500 stores across chains, reported group retail sales up by two percent to R27.5 billion in the year ended March 28. However, although cash sales rose 11 percent, credit sales fell 8 percent with South Africans hesitant to spend money they didn’t have.

“Negative credit sales growth of 8 percent across all the divisions continues to delay meaningful growth of the business. While Edcon did explore measures to enable the company to compete more effectively on credit, these have yet to yield a positive outcome. In addition, the retail market continues to be impacted by a consumer under pressure in a tough economic environment,” it said in a statement.

Chris Gilmour, an analyst at ABSA told ANA that the sales performance showed continued tightening of credit extension conditions and that cash sales growth was key for the group.

Edcon, owned by US private equity firm Bain Capital Partners LLC, is reported to need to repay R4.7 billion of euro, dollar and rand debt next year. It said on Thursday that it had recently entered into discussions with bank lenders and certain 2019 bond holders over capital restructuring that could include debt refinancing. Houlihan Lokey and Goldman Sachs have been retained to advise and assist on the possible restructuring.

“These discussions are proceeding constructively, but there can be no assurance at this time that they will be successful. We will update all stakeholders in due course,” Edcon said.

Gilmour said this was the best option for the group to pursue at this point and that a relisting, which was contemplated a few years ago, was not an attractive option because of Edcon’s high debt. Gilmour pointed to the poor perfomance of the EU denomited bond as a sign that “the market lacks faith” in Edcon’s ability to repay the debt

Edcon has seen declining sales over recent quarters as South Africans increasingly move to buy only with cash. The group saw retail sales dip 0.7 percent in the fourth quarter of the year as credit sales fell 9.6 percent. Group cash sales, however, rose 6.3 percent.

The Edgars division, which includes mono-branded stores, increased total sales 1.8 percent with cash sales growth of 13.6 percent. Credit sales fell 8.2 percent. The Discount division increased sales 2.5 percent with cash sales growth of 10.0 percent and a decline in credit sales of 8.5 percent.

ANA

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