Johannesburg - Shares of JD Group jumped more than 5 percent in early trade on Tuesday after the struggling furniture retailer said it would sell its financing arm, after getting hit by exposure to the troubled consumer debt market.
Companies in South Africa are scrambling to scale back credit to low-income consumers, who are struggling to repay loans in the face of the weak economy and rising food and fuel prices.
Last month the central bank bailed out African Bank Investments, known as Abil, after the lender was hit by rising bad debts.
“It's another example of just how bad things are in the consumer credit sector,” said Nic Norman-Smith, chief investment officer of Lentus Asset Management, which owns shares in JD Group's parent, Steinhoff International.
JD Group, 86 percent-owned by furniture manufacturer and retailer Steinhoff, said in a statement late on Monday it had agreed to sell its finance unit to an international consumer finance group, adding that the deal, which does not include its insurance operations, had yet to be finalised.
It also said it would likely report a hefty full-year loss later this month.
“For Steinhoff, the sale would clear up a lot of uncertainty in terms of future capital requirements in funding JD Group. It also focuses JD's future onto pure retail - which is more in-line with Steinhoff's core business,” said Norman-Smith.
For years JD Group and other retailers have sold sofas and dining sets to lower-income customers on credit.
African Bank also sold furniture through its Ellerine Holdings arm, which is now undergoing “business rescue” - a restructuring that gives it temporary protection from creditors.
Shares of JD Group were up 5.1 percent at 23.60 rand at 09:33 SA time, while shares of Steinhoff were down 3 percent. - Reuters