Distressed Edcon appeals to PIC for rescue funding

Struggling retailer Edcon is in talks with the Public Investment Corporation (PIC), in a bid to raise funds to keep it afloat.

The PIC, which manages about R2-trillion on behalf of government employees and other social funds, confirmed it was in talks to rescue the owner of Jet, Edgars and CNA.

Although the total amount required by Edcon is unknown, it is estimated at about R3bn.

Edcon, which operates 1,350 stores and employs 21,000 people across southern Africa, has been struggling in a difficult economy to adapt to a rapidly changing retail environment.

The group’s inability to cope with these changes has forced it to negotiate with 250 stakeholders, including its shareholders and landlords, to save
its operations.

Though it has long been speculated that the PIC could come in as a shareholder, spokesperson Sekgoela Sekgoela confirmed on Wednesday that it had received a proposal on Edcon and would make a decision after subjecting it to investment processes.

"The Edcon board has approved the structure of the proposed recapitalisation plan, and in response, lenders have extended waivers to allow time for implementation," an Edcon spokesperson said.

"The board fully appreciates the support that is being received from all group stakeholders and the commitment that has been shown."

The PIC might provide R1.8bn to assist the company, said people, who asked not to be identified as the information is not yet public. Landlords might contribute another R700m through reduced rent charges and Edcon’s banks about R500m, they said.

If Edcon’s negotiations were successful, it would be the second time it was bailed out after it was taken over by banks and bondholders when they converted R26.7bn in debt into shares in 2016.

Edcon’s initial problems stemmed from its delisting from the JSE in 2007, when private equity firm Bain used debt to buy it out for R25bn. This
debt was passed on to Edcon, which then had problems paying it back.

@Small Talk Daily Research analyst Anthony Clark did not see any reason why the PIC should be involved in trying to save Edcon from a "failed private equity deal. It should be left
to flounder."

Clark played down the risk of shopping malls being left with a large amount of vacant space if Edcon, which accounts for up to 10% of shopping centre retail space, went under.

International rivals such as H&M and Zara could easily take over the store space Edcon had vacated, he said. H&M had already filled the space left by Edcon when it closed a store in Eikestad Mall in Stellenbosch.

AlphaWealth fund manager Keith McLachlan said the business case for supporting Edcon was not that strong.

Department stores such as Edcon had been struggling to adjust to an evolving retail environment. Edcon had to make the same adjustments, but also sort out its own issues. It could do everything right but still go under, he said.

McLachlan said the PIC could decide to bail out Edcon because it was acting on behalf of the government to keep a major employer from closing its doors in an election year.

As the PIC had a substantial property portfolio, its involvement in Edcon could also be seen as a defensive move. By preventing the retailer from going under, it could be protecting the value in some of its property assets. With Bloomberg

claasenl@businesslive.co.za