JOHANNESBURG, Nov 20 (Reuters) - Edcon, the South African retailer taken private by buyout firm Bain Capital, is in talks to secure a secondary credit provider after the collapse of African Bank Investments (Abil) this year, its chief executive said on Thursday.
The clothing and cosmetics retailer, which reported a narrower first-half loss, also said it did not anticipate any refinancing in the near future.
The move to find another credit provider may allay some concern about the debt-burdened company after Morgan Stanley recommended shorting its bonds, saying the capital structure was “unsustainable”.
“Our focus at the moment has shifted to other providers rather than African Bank,” Chief Executive Jurgen Schreiber said on a conference call with reporters, without giving details.
Unlisted Edcon said in April it had entered a non-binding agreement with Abil for the lender to provide credit to some of its customers.
But Abil was later rescued by the central bank after getting hit by waves of bad debts from low-income borrowers.
Abil’s collapse underscores the parlous state of consumers’ financial health in Africa’s most developed economy, where debt accounts for around three-quarters of household spending.
Edcon entered into the Abil agreement to secure credit for shoppers who didn’t meet the criteria of its primary provider, Absa, a unit of Barclays Africa.
Morgan Stanley said in its September note that securing a secondary provider could help mitigate its “bearishness”.
Ratings agency Standard & Poor’s has also warned investors about Edcon’s outlook, cutting its rating a notch to ‘CCC+', and sending it further into “junk” territory.
“With very high debt, we believe Edcon’s capital structure is unsustainable and that some form of restructuring is likely over the medium term,” Standard & Poor’s said.
Chief Executive Schreiber told reporters the company was not “in front of any refinancing for a very, very long time”.
Edcon reported a loss of 1.1 billion rand ($100 million) in the 26 weeks to Sept. 27, from 1.3 billion a year earlier.
Edcon’s U.S. dollar bonds maturing in 2018 last traded at a yield of 17.34 percent on Thursday, according to Reuters data. At the end of September they hit a record 17.53 percent.
1 US dollar = 11.0004 South African rand Reporting by David Dolan; Editing by Mark Potter