Edcon seeking help from PIC to stay in business

Grant Pattison is the CEO of struggling retail holding company Edcon
Grant Pattison is the CEO of struggling retail holding company Edcon

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 that 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 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, people who asked not to be named, said as the information is not public yet.

Landlords might contribute a further R700m through reduced rent charges and Edcon’s banks about R500m, they said.

Landlords are likely to agree to lower rentals for Edcon, rather than lose the income completely.

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

On December 11, Edcon wrote to its landlords asking them for a two-year “rent holiday” of 41% for all its 1,350 stores. In exchange, they would get a 5% stake in Edcon.

The retailer says it is starting to get the mix of product and pricing right.

“Much of the commentary reflects how it was two years ago,” Edcon CEO Grant Pattison said on 702’s Money Show early in December.

Pattison’s point was backed up by the group saying a few weeks later that Christmas sales were encouraging.

It said there were signs that its credit sales business was starting to recover, as credit sales growth now matched cash sales, and that the number of new accounts was on the rise.

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.