South Africa’s Edcon has secured 2.7 billion rand ($191 million) in new cash and rent deductions as part of a plan to recapitalise the struggling department store chain.
The owner of Edgars and stationary retailer CNA has been grappling with its debts for several years, after troubles in its credit business in 2014 coincided with an economic slowdown and weak consumer spending.
In January, Edcon’s chief executive Grant Pattison said it needed 3 billion rand ($226 million) in financing over the next three years to allow it time to “fix” its business.
Edcon, which vies for market share with TFG, Truworths and international chains such as Zara and H&M, is one the biggest names in South African retail, employing more than 14,000 full-time staff in over 1,100 stores.
It has been in talks with lenders and other investors about injecting money, while asking landlords to reduce rents in exchange for equity in the company.
“This is a significant step forward towards ensuring the restoration of our balance sheet and putting the company back on the path to success,” Pattison said of the deal with Edcon’s secured lenders, the government pension fund and landlords .
“It will provide management with a sufficient time-frame to implement the store estate restructure and focus on returning the business to profitability.”
Edcon said the recapitalisation will result in the removal of all of its interest-bearing debt and also introduce a new group structure and set of shareholders.
Once all conditions have been finalised, the shareholders will consist of Edcon’s existing lenders, the Public Investment Corporation and participating landlords of Edcon, as well as Edcon’s employees, it said.
The Southern African Clothing and Textile Workers’ Union welcomed the announcement, saying in a statement that the agreement means “a job massacre has been averted in the local clothing manufacturing industry.”
Edcon currently occupies 5.3 percent of Liberty Two Degrees’ Ltd total portfolio gross lettable area (GLA) and this exposure is anticipated to reduce to 4.3 percent of total GLA by Dec.31, the real estate investment trust said in a statement after the announcement.
While Redefine Properties Ltd, a significant landlord of Edcon, said it agreed to rental reductions up to the maximum amount of 13.8 million rand ($974,569.39) over a two-year period in respect of leases totalling 21,972 square meter.
It’s equity contribution will be 54.6 million rand, it added in a statement.