South Africa’s Edcon Can’t Pay Suppliers, May Not Re-open

(Bloomberg) -- Edcon Holdings Ltd., South Africa’s second-biggest clothing retailer, said it may not be able to re-open at the end of a three-week national shutdown to combat the coronavirus outbreak.

The Johannesburg-based owner of the Edgars and Jet chains is facing a trading slump after President Cyril Ramaphosa said the pandemic merited the status of national disaster. Like-for-like sales have dropped 45% since that statement less than two weeks ago, and March revenue will be 400 million rand ($23 million) below the retailer’s forecasts, Chief Executive Officer Grant Pattison said in a statement to suppliers sent to Bloomberg News.

“The failure to meet the March sales targets, and the expected drop in collections of the debtor’s book, will mean that the business only has sufficient liquidity to pay salaries,” Pattison said. “Edcon is unable to honor any other accounts payable during this period.”

Ramaphosa has ordered a 21-day lockdown from Friday to curb the spread of the coronavirus as infections continue to increase. Essential services such as grocers, pharmacies, banks and gas stations will be allowed to remain open, but the bulk of Edcon’s 1,100 clothing stores will close, costing about 800 million rand in sales, Pattison said.

State Assistance

Edcon may need to consider a local form of bankruptcy and will hold talks with government about any possible state assistance, the CEO said. The company employs 18,000 people and its suppliers employ many more.

It’s a case of out of the frying pan and into the fire for Edcon, which last year secured 2.7 billion rand from lenders, landlords and the Public Investment Corp. in a restructuring plan that freed the retailer of all interest-bearing debt after years struggling with high borrowings.

Bain Capital Private Equity LP handed the company to creditors in 2017 after a buyout ten years earlier turned sour. Pattison, formerly of WalMart Inc-owned Massmart Holdings Ltd., worked on a turnaround and restructuring for much of his first year in charge and in February agreed to sell newsagent chain CNA.

“I am therefore unable to make you any promises other than to keep you updated of developments or plans the board approves,” Pattison said to the suppliers. “What we are experiencing at Edcon is an early indicator of the challenge that both government and many other businesses will have to face after the lockdown.”

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