Edcon mulls JSE listings to repay debt

Should the company return to the bourse, Woolworths and Mr Price will be at risk, according to a confidential report by Macquarie First South Securities Research.

Edcon has to retire R11bn of debt by 2014. To do this an initial public offering (IPO) would be necessary, the report reads.

"We think this has negative short-term implications for its listed apparel peers as competition intensifies during 2012," the researchers write.

The owner of chains such as Edgars, Boardmans and CNA was taken private by US-based firm Bain Capital in 2007 for R25bn.

It faced the burden of servicing its debt in a far worse economic environment than the boom time in which it delisted.

The research report says Edcon is ramping up its competitiveness to drive sales, market share and profitability in the run up to a possible IPO. "The threat is shorter-dated than investor expectations. Given Edcon's size, the impact could be substantial."

Last week, Edcon said it would ramp up space growth, putting an end to a conservative few years for the retailer. Total retail sales grew 12.3% and same-store sales 10.5% in the quarter ended December.

Analysts agree the losers seem to be Bain Capital and its investors, who may have paid too much for the company.

Nedbank Securities analyst Syd Vianello said since the buyout, Edcon's performance has been dismal compared with its peers.

"I doubt the original shareholders will get much of their investment back should the company list now. Never in the history of SA has a company with almost R20bn worth of debt sought a listing. It is a difficult task."

Despite this, the company may be forced to head to the bourse as the bonds will mature soon, he said. "The bondholders will now dictate the rules."

The company will now need to find R11bn in two years' time to pay the bondholders or face default, Vianello said.

Should they default, the bondholders could take control of the company. The other possibility is a foreign retailer buying the company, he said.

Vianello warned however that an invigorated Edcon could cause turmoil in the market.

Absa retail analyst Chris Gilmour said at the time the buyout seemed like a good idea, however in hindsight, it may be a disaster. "One of the main reasons that then-CEO Steve Ross gave for the delisting was he felt the market had not given Edcon a decent rating. Now, five years down the line, the market is even less buoyant and may be even less inclined to give the rating they think they deserve."

Edcon's chief financial officer, Steve Binnie, said yesterday the company did not "comment on speculation".

Source: Business Day