Bloomberg writes that a scramble to help Edcon Holdings keep afloat suggests that, like Eskom and SA Airways, the retailer might be seen as too big to let fail.
Edcon has about 30,000 employees, a supply chain that includes 750 companies and floor space that accounts for a 10th of the occupancy in SA’s biggest shopping malls, the most of any company. A collapse could exacerbate an unemployment crisis and cause income from commercial property rentals to slide. Edcon is in talks with lenders and landlords to get more cash and to reduce rentals as it struggles with a debt burden that’s a legacy of the way its 2007 takeover by Boston-based Bain Capital was financed. “If Edcon were to fail, it would be a big challenge for South Africa and it’s in everyone’s interests to get a deal signed,” said property analyst Wynand Smit. Among potential rescuers is the Public Investment Corporation (PIC), which oversees the pensions of government workers. But, some have questioned whether helping a struggling retailer whose troubles are due to a private equity deal, sets a dangerous precedent that could incentivise reckless levels of indebtedness among private and listed retailers. Rising costs have already resulted in SA mining companies cutting tens of thousands of jobs and so “a move to help Edcon would leave the question of what about other struggling companies?” Smit observed.
- Read Janice Kew’s informative report on this story in full at Bloomberg
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