Harare – Debt-laden South African retail giant Edcon said it has secured 2.7 billion rand ($191 million) in new cash and rent deductions as part of a plan to recapitalise the struggling department store chain.
Edcon, the owner of Edgars, Jet and stationery retailer CNA has been grappling with an over-leveraged capital structure for several years, after troubles in its credit business in 2014 coincided with an economic slowdown and weak consumer spending at home.
Earlier this year, CE Grant Pattison said the group needed 3 billion rand ($226 million) in financing over the next three years to allow it time to "fix" its business.
It has been in talks with lenders and other investors about injecting money, while asking landlords to reduce rents in exchange for equity in the company.
Edcon said in a statement that it had secured binding agreements with existing secured lenders, the Public Investment Corporation (PIC) on behalf of its client the UIF and participating landlords, which will result in the implementation of the R2.7bn recapitalisation programme.
"This is a significant step forward towards ensuring the restoration of our balance sheet and putting the company back on the path to success.
"It will provide management with a sufficient time-frame to implement the store estate restructure and focus on returning the business to profitability."
Edcon said the recapitalisation will result in the removal of all of its interest-bearing debt and also introduce a new group structure and set of shareholders.
Once all conditions have been finalised, the shareholders will consist of Edcon's existing lenders, the Public Investment Corporation and participating landlords of Edcon, as well as Edcon's employees, it said.
Had Edcon not secured the funding, it might have gone into a business rescue process. However, the size of the business, its debt and scale of its restructuring would have meant a business rescue would have had slim chances of succeeding, according to analysts.
Commenting on the deal to Moneyweb, retail analyst Chris Gilmour said: “It solves Edcon’s immediate funding problem, which is good. Now Grant can turn his attention to clawing back lost market share … They dodged a bullet with this recap. However, they also need to now reach out to their suppliers whom they left in the lurch in January with no warning. They just did not pay them and that needs to be addressed urgently.”
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