April 29, 2020 / 1:33 PM / a month ago

South African retailer Edcon to file for bankruptcy protection

JOHANNESBURG (Reuters) - South African retailer Edcon will file for bankruptcy protection in the next few days, it said on Wednesday, becoming the country’s first major corporate casualty of the coronavirus pandemic.

FILE PHOTO: Shoppers walk past an Edgars store at a shopping centre in Soweto, southwest of Johannesburg, January 30, 2015. REUTERS/Siphiwe Sibeko

Edcon said it had lost 2 billion rand ($108 million) of sales since the virus reached South Africa in early March and the government responded with a nationwide lockdown that forced non-essential shops to close.

That hit, coupled with a decline in collections from debtors, meant the company, which owns department stores chain Edgars and budget clothing retailer Jet, was unable to pay suppliers and creditors in March and April, it said in a statement.

According to its website, Edcon has more that 14,000 permanent staff and around 25,000 temporary employees.

When the five-week lockdown is lifted on May 1, Edcon’s stores will be re-opened under the business rescue proceedings, a form of bankruptcy protection.

In a letter addressed to creditors, suppliers and stakeholders, seen by Reuters, Chief Executive Grant Pattison said the start of the process meant a moratorium on legal and enforcement actions against the company.

“We will be working closely with the appointed business rescue practitioners, shareholders and government to find a way to plug the financial hole,” he said in the letter.

“It is my hope that some version of the business will emerge to continue to serve customers.”

Edcon said it anticipates that sales will be depressed for some time during the phased lifting of the lockdown, which may last several months.

Just before the country went into the lockdown on March 26, Pattison warned the group might need to seek protection from creditors and would be heavily dependant on business support packages offered by government and other agencies and funders.

Edcon has been grappling with debt for several years after troubles in its credit business in 2014 coincided with an economic slowdown. Bain Capital, which took control of Edcon in a leveraged buyout in 2007, gave up equity control in 2016 to creditors.

Since then it has been trying to restructure by trimming its head office and stores, negotiating lower rents, and pushing its own clothing brands while cutting back on international labels.

A lifeline came in March last year when it secured 2.7 billion rand in new cash and rent deductions from shareholder the Public Investment Corporation and participating landlords.

Edcon said on Wednesday the money had been substantially used to fund losses for the financial years ending March 2019 and March 2020.

Reporting by Nqobile Dludla; Editing by Mark Potter and Nick Tattersall

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