UPDATE 2-South Africa's JD Group to sell finance arm, flags full-year loss

Mon Sep 1, 2014 1:49pm EDT

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JOHANNESBURG, Sept 1 (Reuters) - South African furniture retailer JD Group flagged a hefty full-year loss on Monday and said it would sell its finance arm, having been hit by its exposure to consumer debt in Africa's most developed economy.

Companies in South Africa are scrambling to scale back credit to low-income consumers who are struggling to repay loans in the face of the weak economy and rising food and fuel prices.

Last month the central bank bailed out African Bank Investments, known as Abil, after the troubled lender was hit by rising bad debts.

Like JD Group, African Bank also sold furniture on credit to lower-income customers. Abil's furniture operation is now undergoing "business rescue"; a restructuring that gives it temporary protection from creditors.

Economists have said that Abil's troubles highlight broader problems in the South African economy, where household debt averages about 75 percent of disposable income.

JD Group, which is 86 percent owned by furniture manufacturer and retailer Steinhoff International, said in a regulatory statement that it expects to report a headline loss of up to 570 cents a share for the year to June 30, compared with earnings per share of 395.2 cents a year earlier.

It said it had accepted an offer for its finance arm from an international consumer finance group, adding that that the deal, which does not include its insurance operations, had yet to be finalised.

JD Group said the sale would reduce its funding requirements and improve its balance sheet.

Separately Steinhoff said that its full-year earnings rose by as much as 15 percent. Both JD Group and Steinhoff are due to report results this month.

Shares of JD Group closed at 22.45 rand, up 0.5 percent, before the announcement. Steinhoff shares were up 1.3 percent at 53.19 rand. (Reporting by David Dolan; Editing by Stella Mapenzauswa and David Goodman)

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