Renee Bonorchis, Janice Kew and Luca Casiraghi
EDCON Holdings, the loss-making South African retailer, has to choose between spending the little money it has or not paying a e28 million (R381.32m) coupon due today as it seeks to restructure borrowings.
The company has the option to delay payment by a maximum of 30 days before a default under the terms of the bond.
The coupon is equivalent to more than half Edcon’s working capital in fiscal 2015, with the company having warned in May that it might not be able to raise new funding or sell assets.
Edcon has about R25 billion of debt and has cut jobs as a slowdown in South Africa’s consumer spending contributes to losses and slower sales growth across its more than 1 500 stores.
Chief executive Jurgen Schreiber is stepping down and the company needs to start repaying about R4.5bn of debt denominated in euros, dollars and rand next year. Bain Capital Partners, which bought Edcon in 2007, has hired Goldman Sachs and Houlihan Lokey to advise on a restructuring.
Payment of today’s coupon at a later date “usually just delays the pain and allows for a bit more time to negotiate with bondholders,” Jean Pierre Verster, an analyst at 36one Asset Management, said yesterday. A deferred payment could affect the bond’s ratings and yield “seeing that it is a clear sign that the company is in a difficult financial position.”
No other South African company has delayed a coupon payment in the past five years, apart from African Bank Investments which suspended all securities after collapsing last year. Bain and Edcon declined to comment when contacted yesterday. Edcon’s retail-sales growth slowed to 2 percent in the 52 weeks ended March 28 from 5.1 percent a year earlier. – Bloomberg