Edcon won’t end talks with Abil

Published Aug 22, 2014

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Nompumelelo Magwaza

DESPITE the collapse of African Bank Investment Limited (Abil), clothing retailer Edcon would not terminate negotiations with the bank as its secondary credit provider, but would look for another possible credit provider, the group’s chief executive Jürgen Schreiber said yesterday.

Prior to the collapse of Abil, Edcon had signed a term-sheet agreement, a non-binding agreement used to set forth basic terms and conditions of a contract.

The Reserve Bank said it would buy Abil, which was a leader in the unsecured lending market, for R17 billion after the lender revealed that it would make a full-year loss and that it needed to raise more capital for the second time in a year.

Edcon, whose credit book was recently bought by Absa for R10bn, was looking for a secondary credit provider as its credit sales continued to suffer under the slowdown of the economy and high levels of indebtedness among consumers.

Since it took over the book, Edcon has seen a high number of credit applications decline as banks tighten credit-granting criteria.

Schreiber said it was not Edcon’s business style to just terminate something in the middle, “that we do not have an idea of how it would end”.

“We have signed a term sheet with African Bank, we have not signed a contract. There is no contract signed at this point and there is no credit granting coming out of African Bank at this time,” he said.

But this does not mean that Edcon was not engaging Abil on the way forward. “We will continue the negotiations with African Bank while we have a dialogue with other banks,” Schreiber said.

Edcon said it was also working very close with Absa to optimise its credit sales. For the three months to June, Edcon saw a decline of 3.3 percent in credit sales and an increase of 15.1 percent in cash sales.

Schreiber was of the view that the Reserve Bank had done a sterling job in rescuing Abil. “We deem the steps taken by the Reserve Bank as very positive; it is a great institution… with a great track record.

“We think the splitting of a ‘good bank’ and ‘bad bank’ approach might lead to very good and strong bank in the future.”

Schreiber said what was good about this was that Edcon was starting to see customers being less dependent on credit.

Ron Klipin, the portfolio manager at Cratos Wealth, said it would be difficult for Edcon to find a second credit provider, especially since the big banks had been winding down their unsecured lending books.

He added that unsecured lending was not the flavour of the month. “I would imagine other banks would be prepared to lend under certain stringent conditions. However, the market has tightened up significantly,” he said.

The group, which trades under Edgars, Jet Mart, Legit and CNA among other brands, lifted retail sales by 5.7 percent to R6.6 billion. Edcon’s pro forma adjusted earnings before interest, tax, depreciation and amortisation declined by 6.6 percent in the first quarter to R679 million.

Its flagship store, Edgars, grew sales by 6.3 percent with same-store sales increasing by 2.8 percent. The discount division increased sales by 5.8 percent supported by cash sales.

“We have delivered an acceptable set of results over the last quarter considering the current market conditions and are satisfied that group performance has stabilised,” Schreiber said.

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