UIF helps ‘too big to fail’ Edcon
● Edcon, the owner of Edgars, has secured a deal with its landlords, the Public Investment Corporation (PIC) and banks that will inject R2.7bn into the business and give it, yet again, critical breathing space to turn operations around.
The deal announced on Friday will see new shareholders investing R2.7bn in SA’s largest nonfood retailer. This includes the PIC, on behalf of the Unemployment Insurance Fund. The deal will leave it debt free.
Edcon CEO Grant Pattison said: “Trying to get these various groups of stakeholders across the line was difficult and at any one point in time a group of stakeholders was not there.”
Pattison said Edcon chair Gareth Penny played a lead role with banks in London, while former Investec CEO Stephen Koseff also “played a massive role” in concluding the deal. He added that the unions had been “very supportive”.
Etienne Vlok, national industrial policy officer at the Southern African Clothing and Textile Workers Union, said: “Edcon more than any other retailer buys locally made products. If they were to close there would be a disproportionate impact on local clothing manufacturers and the people employed there.”
Pattison said the funds were sufficient to ensure the group can survive losses for the next two to three years, during which the plan is to return it to profit, while cutting store space by at least a third.
As many as 31 landlords, including listed property companies such as Growthpoint Properties, Vukile Property Fund, Liberty Two Degrees and Hyprop Investments, have met with Edcon over the past few months. They agreed to reduce rent for Edcon stores in exchange for a stake in the business in a bid to stave off liquidation and save jobs. Edcon employs 40,000 people.
In a letter leaked to the Sunday Times last year, it was proposed landlords would give Edcon a rental holiday of 41% for two years and receive 5% in the company. This week the terms of the deal were not disclosed.
Many funds have seen their dividend payouts come under pressure from the closure of some Edcon stores. The retailer has sold most brands apart from Edgars, Jet and CNA.
Hyprop, which owns The Mall of Rosebank and Canal Walk, has the most exposure to Edcon, with 9.4% of its gross lettable area rented to Edcon brands. Edcon accounts for 7.6% of Hyprop’s gross income.
Hyprop CEO Morné Wilken said: “Edcon plays a large role in our country. If it did fail, there would be effects across the economy, especially the loss of jobs.”
Edcon has had problems since Bain Capital bought it in 2007 for R25bn. A debt spiral, the credit crunch and competition from international brands nearly sank the company.