Edcon stores to open on Friday, but still files for business rescue
Chief executive Grant Pattison said yesterday that Edcon’s stores would open on Friday, along with other businesses on the Level 4 regulations, under business rescue following a resolution by the board.
Pattison said the decision to place the country’s second-biggest retailer under business rescue was made in the best interests of the company and its stakeholders.
He said business rescue would provide the company with additional time to raise money to pay its creditors.
“In the short time that has been available to us, we have been unable to raise the funds needed to pay the creditors for the March and April month-ends,” Pattison said.
“In this circumstance, South African law requires that the company either be placed in liquidation or business rescue.”
Renowned business rescue practitioners Piers Marsden and Lance Schapiro of Mutason & Associates, who have been appointed to lead the process, have undertaken some of the most complex business rescue proceedings in South Africa, including South African Airways, Optimum Coal and Evraz Highveld Steel and Vanadium.
“We will be working closely with the appointed business rescue practitioners, shareholders and government to find a way to plug the financial hole. It is my hope that some version of the business will emerge to continue to serve customers,” Pattison said.
The business rescue proceedings are a blow to management’s efforts to turn the ailing business around in an oversupplied industry coupled with a difficult microeconomic landscape.
Edcon dodged collapse after receiving a R2.7billion lifeline from its lenders, landlords and the Public Investment Corporation (PIC).
The decision, which was widely reported to have been made as a result of political pressure, was said to have run counter to the recommendations of the PIC’s investment professionals.
PIC spokesperson Deon Botha, however, denied the claims, saying the investment was underpinned by sound commercial, social and governance principles. Botha said the transaction was subjected to rigorous internal investment processes.
The retailer’s latest position represents a R2bn loss for Africa’s largest asset manager, which came under scrutiny in 2019 and was hauled before a commission of inquiry into impropriety, led by Judge Lex Mpati.
Pattison said the PIC money was used to fund the losses for the financial years ending March 2019 and March 2020, as planned.
“Edcon was on track with its business plan to the end of December 2019,” said Pattison.
The group said the loss of sales during the Covid-19 pandemic and the extended lockdown consumed the group’s remaining cash.
In February, Edcon sold its CNA chain of stores to a consortium led by JSE-listed Astoria Investments, to keep afloat.
Pattison said the group’s turnaround plans faced strong headwinds such as load shedding and an economic recession in the second half of 2019.
“While some progress had already been made on the product and in-store experience, the first fully revamped offering would only have been realised in winter 2020,” Pattison said.
Lulama Qongqo, an investment analyst at Mergence Investment Managers, said that Edcon’s decision to file for voluntary business rescue was not surprising, as it was burning cash.
Qongqo said Edcon had not been able to come up with a solution to their funding problems independently.
He said Edcon would possibly open with heavy discounts to meet its cash flow needs.
“What that means is that there are possible limitations to what they can sell, and they may have to discount heavily to compel consumers to come out in their numbers and buy their products,” Qongqo said. Additional reporting by Sizwe Dlamini