SOUTH AFRICA - BAIN CAPITAL HANDS OVER EDCON TO ITS CREDITORS & SELLS LEGIT STORES

BAIN Capital will hand over ownership of the Edcon group to its creditors and walk away with nothing after its R25bn investment into the company nine years ago.

CE Bernie Brookes said on Tuesday that the transaction would be a total loss for Bain as it would take "zero" from the change of ownership.

Brookes said a four-year plan was in place that would end with a listing on the JSE.

"Bain has, in essence, handed over the keys of the Edcon house to its creditors. Our creditors are now our owners. Bain have managed the debt to equity with great professionalism.

"They could have chosen to simply put the business into rescue, but they didn’t. But ultimately what the move means is that we can become a retailer instead of a business managed by debt," Brookes said.

The new owners of the company include Franklin Templeton, Harvard Pension Fund, Barclays Africa Group and FirstRand.

Edcon’s capital structure will reduce the debt position from about R26.7bn to R6bn.

The creditors have also committed to fund up to an additional R2.8bn to shore up the group’s liquidity position.

An analyst who cannot be named in line with company policy, said there was now hope for Edcon, but it would be a challenging road ahead as the trading environment was difficult. "Based on the information that we were given, what seems to be the scenario is that they have finally managed to come up with a capital structure, which will allow the business to operate and function and service its debt. We are also not sure that what we have told you now isn’t going to change.

"There’s a lot of ifs and buts and all the rest of it, but the assumption is that if they do manage to restructure the capital structure so that they can function going forward, it’s obviously a positive for the group," said the analyst.

As part of the restructuring, Edcon will sell Legit to Metier Private Equity for R673m.

Brookes, flanked by four members of top management, said that was not a signal the rest of the business was for sale.

"It was a good time to sell Legit. The money will go into cash flow to fund infrastructure. We have some operations that are broken, such as CNA and Boardmans but we have plans to fix those. The sale was not done to fund debt.

"Legit is a business that needs time that we just can’t give it. It needs a very fast supply chain and we have a very slow supply chain at present," Brookes said.

Edcon is SA’s largest nonfood retailer. It trades in SA, Botswana, Namibia, Mozambique, Swaziland, Lesotho, Zambia, Ghana and Zimbabwe.

Absa Wealth & Investments investment analyst Chris Gilmour said one of the reasons Edcon had chosen to go private in 2007 was because it did not feel at the time that the share price of the company reflected its intrinsic value. Had it not been for the global crisis, Gilmour said, the picture could have been very different.

While Edcon had had a difficult time, it was still a force to be reckoned with.

Gilmour said Edcon had set the cat among the pigeons.

"As the biggest player, I bet they intend to come back in an aggressive way. This will make the whole industry more competitive.

"It will be fascinating to see what will come from this," he said.

Holders of about 80% of secured bonds in value signed a lock-up agreement for the debt restructuring. The deal was awaiting approval from the Commerce Commission, Edcon said. It would take about six weeks.

"We were uncompetitive," Brookes said. "We lost sizeable market share to all of our competitors. We got feet into stores by promotion, but in-between it was quiet.

"With the debt issue resolved, we can now focus on realignment."

The group issued a trading update for the year to March 26 2016, saying that the trading environment for 2016 had been challenging, primarily due to higher income taxes, unemployment, interest rates, a rise in domestic grain prices and a sustained weak rand exchange rate.

Group retail sales decreased 1.3% from a year earlier to R27bn, while store sales declined 3.2%.

The Edgars division’s sales were unchanged from the previous year, which was an indication that the transforming offering at Edgars was starting to find acceptance from the large Edgars customer base, Brookes said. "We expect this to increase materially, as we accelerate the in-store and product improvements, as well as the exciting online store … and the significant changes being made to our over 12-million member loyalty Thank-U card."

Credit sales contributed 38.8% of total retail sales in the period under review, compared with 42.7% in the previous year.

VIA - bdlive.co.za