Vukile Property Fund yesterday agreed to a R37 million capital investment in Edcon, South Africa’s largest retailer in exchange for equity.
Vukile’s investment comes days after Edcon survived a collapse following an R2.7billion recapitalisation deal that is expected to save at least 140000 direct and indirect jobs.
Edcon said on Friday that it had completed a recapitalisation deal with its existing lenders, landlords and the Public Investment Corporation (PIC), which included new cash commitments and rent reductions.
The recapitalisation was expected to result in the removal of all of Edcon’s interest-bearing debt and introduced a new group structure and set of shareholders. Property giants Redefine, Attacq and Hyprop have said they would support the recapitalisation, while Investec Property Fund said it would also participate.
Vukile, whose footprint includes South Africa, Spain and the UK, said yesterday that the capital would be provided in four equal amounts at six-monthly intervals over two years starting in December 2019.
The company said Edcon represented 2.5percent of Vukile’s group rental income, down from 3.2percent last March 2018.
Vukile chief executive Laurence Rapp said the investment upheld the company's underlying rental streams for Vukile shareholders while mitigating risk. “Considering what is at stake, with potential large-scale job losses in the retail and textile sectors as well as the implications for the broader South African economy, we chose to be proactive in our negotiations with Edcon and play a constructive part in its restructuring,” Rapp said.
Rapp also said that Edcon’s footprint in Vukile’s shopping centres would decline further and negotiations to achieve this were at an advanced stage.
Vukile expected the company's exposure to Edcon to account for only 2percent of Vukile’s group rental income by August 1. “The impact of the decreased exposure has been factored into the overall capital investment amount,” Rapp said.
Edcon stores in Vukile’s portfolio would be reduced by 11 to 43 stores by August 1, 2019, and the total Edcon footprint in Vukile’s portfolio would decline from 56656m² to 40086m².
Vukile has re-let or is in advance stages of negotiations to let around three-quarters of this 16570m².
Meanwhile, Attacq said yesterday that its effective South African Edcon exposure will settle at 22945m² by October 1, 2019, with effective gross monthly rental at R3.2million.
Attacq warned its involvement in Edcon’s recapitalisation programme would negatively impact its 2019 financial year distributable earnings by R4.1m.
Hyprop has said that it had agreed to support the restructuring proposal with a reduction in rentals, compensated for by equity participation in Edcon.
“While this will impact distributable earnings in the 2019 and 2020 financial years by 0.8percent and 2.3percent, respectively, it is considered an acceptable limitation of the risk,” it said on Friday.