Ambitious plan to sell deeply indebted Edcon
RETAILER Edcon’s business rescue practitioners (BRPS) have set their eyes on a new funder to buy the clothing retailer in order to pay creditors.
Edcon, the 91-year-old retailer that collapsed this year, is believed to owe creditors at least R5 billion.
Some of the creditors are believed to include Goldman Sachs, hedge fund Apollo Global Asset Management and Albacore Capital.
Edcon, South Africa’s biggest apparel retailer, with 17292 employees and 5 000 seasonal casual workers, went into voluntary business rescue last month after the coronavirus (Covid-19) lockdown regulations further dented its ailing fortunes.
The BRPS, Piers Marsden and Lance Schapiro, said they were seeking buyers for Edcon’s brands of Edgars, Jet and its loyalty programme, Thank U. They said the business rescue plan was scheduled to be approved by affected parties including employees, creditors and lenders tomorrow .
The South African Commercial, Catering and Allied Workers’ Union (Saccawu) said the business rescue process was, however, unlikely to save jobs.
“We are not very confident,” said Saccawu’s secretariat co-ordinator Lucas Ramatlhodi.” From what
I have seen, they (BRPS) dispose of assets, and the first casualties are workers because the priority becomes cutting the wage bill. I will not be surprised if they (BRPS) issue a Section 189 notice to retrench workers.”
Ramatlhodi added: “That has been the pattern of BRPS.”
The bid for new owners comes more than a year after lenders and landlords agreed to a restructuring of Edcon’s debt in the wake of a leveraged buyout by Bain Capital Private Equity LP in 2007 that turned sour.
In April, Edcon flagged that it had lost R2bn in sales as a result of the Covid-19 imposed lockdown.
It said that like-for-like sales dropped 45 percent since President Cyril Ramaphosa announced a national state of disaster with revenue in March falling R400 million below forecasts.
Last year, the group made headway after its lenders, the Public Investment Corporation (PIC), on behalf of the Unemployment fund and landlords, recapitalised the company with R2.7bn in rent reductions and cash commitments.
The PIC invested R1.2bn in an effort to keep the company afloat and prevent job losses.
Following the recapitalisation, Edcon implemented a turnaround strategy aimed at selling non-core assets to stabilise the company, but the effort collapsed as a result of the lockdown restrictions.
Marsden and Schapiro said that the business rescue plan had been prepared on an “accelerated sales process” basis, as an interest to invest in or provide funding to the company had not been forthcoming, and the securing of post-commencement finance not currently imminent.
“The key priority and intention of the sales process are to secure the sale of the business and or its divisions as going concerns, which most notably will involve the transfer of some of the employees, resulting in a significant number of jobs being saved at Edcon,” they said.
Lulama Qongqo, an investment analyst at Mergence Investment Managers, said the BRPS were unlikely to sell parts of the business.
Qongqo said the BRPS would need to de-link the divisions they have from each other.
“The sale of the whole business would also be difficult as they will continue to face the same challenges in terms of making sales and meeting debt obligations,” Qongqo said. “I think the mentioned potential buyers wanted to have a peek at how messy it is and whether it’s a challenge they are willing to take on, but I will be surprised if any of them follow through with an offer. If there is a buyer, they must have plenty of cash to burn in the process of fixing Edcon.”