Bain’s Edcon in Debt-Refinance Talks as Retailer Seeks Customers

  • South African Edgars owner debt gains 15% in second quarter
  • Details of refinancing may be released before the end of year

Edcon Holdings Pty Ltd., South Africa’s largest clothing retailer, is in talks to refinance debt as the company seeks to increase cash flow and free up management to focus on attracting more customers to its stores.

The owner of the Edgars and Jet chains is negotiating “from bonds right the way through to outstanding letters and options that we have in revolving debt,” Chief Executive Officer Bernie Brookes said in a phone interview on Thursday. “The business can’t maintain the level of debt and still invest.”

Bain Capital Partners LLC, which bought Edcon for about 25 billion rand ($1.8 billion) in 2007 to tap rising economic growth in Africa’s second-largest economy, burdened the retailer with debt. That increased 15 percent to 27 billion rand in the in the three months through Sept. 26, Edcon said in a statement. The company may release details of the refinancing before the end of December, Brookes said.

In June, Edcon asked holders of the company’s 425 million euros ($455 million) of 2019 bonds to take a loss as the company sought to stabilize its balance sheet. Almost all of the bondholders accepted the exchange offer, cutting Edcon’s net-cash interest payment obligations by about 1 billion rand a year.

“The debt makes management focus too much on cash flow and financing and working capital, whereas all the eyes and the ears of the business should be on the customer,” the CEO said.

Sales decline

Edcon retail sales declined 0.1 percent in the quarter as transactions settled on credit slumped 7.6 percent, the Johannesburg-based company said. Earnings before interest, taxes and other deductibles rose 3.1 percent to 501 million rand. Cash sales, which account for almost 60 percent of the total, climbed 5.6 percent.

Yields on Edcon’s March 2018 bonds rose 13 basis points to 36.37 percent, according to Bloomberg generic pricing. Rates on the securities jumped to a record high 37.56 percent on Sept. 30.

“I’m not going to call a result a great result when it’s not,” Brookes said. “We’ve had a poor result compared with all the other retailers, we’ve got lots of things to do, but goodness the people are trying hard,” he said. Brookes was head of Victoria, Australia-based Myer Holdings Ltd. until May and became Edcon CEO on Sept. 30.

Edcon’s so-called second-look credit book, which considers customers that may have failed to meet lending criteria stipulated by primary lender Barclays Africa Group Ltd., has returned acceptance rates to a “healthier level and is gradually assisting to slow the decline in credit sales,” Edcon said. The retailer’s loan approvals halved after Edcon sold its private-label store cards business to Barclays Plc’s Africa unit in 2012.

“We never really want to have on our balance sheet our own credit book,” Brookes said. “So our desire would be to sell that second book, but similarly we’ve got to prove the value of it.”

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