Tag: lifeline

Edcon group gets R2.7-billion lifeline

By Lynley Donnelly for Mail & Guardian

The Unemployment Insurance Fund (UIF), debt holders and landlords have all come to the rescue of the troubled Edcon group — which owns Edgars, Jet and CNA — in a deal that proponents say will avert a “jobs massacre” and swathes of mall space being shuttered.

The recapitalization programme will inject R2.7-billion into the company through new cash commitments from the parties and rent reductions by participating landlords, the company said in a statement late on Friday afternoon.

The Southern African Clothing and Textile Workers’ Union (SACTWU), as well as trade federation Cosatu, have hailed the deal.

It will avert a “job’s massacre,” not just at Edcon but in the wider clothing and textile manufacturing industry, said Sactwu’s national industrial policy officer, Etienne Vlok.

The sentiment was echoed by Edcon chief executive Grant Pattison who said the deal was not just about saving Edcon jobs.

According to Sactwu’s research Edcon procures around 45% of its clothing products locall — the most of all the country’s major retailers. The local manufacturing businesses that Edcon supports are also concentrated in geographic areas in rural and peri-urban areas, particularly in KwaZulu-Natal, Vlok said.

Edcon – one of the country’s largest non-food retailers, which occupies around 10% of mall space – has battled to cope with an increasingly tough retail landscape, crowded with both international competitors and increasingly popular online offerings. It has also been labouring under a legacy of debt since it was delisted in a private equity deal by Bain Capital in 2007.

Critics have however argued that public funds should not be used to rescue a poorly performing private company, whose demise began with a highly leveraged private equity deal.

The UIF – whose assets are managed by the Public Investment Corporation – has R156-billion in surpluses. The fund pays out workers in the event of retrenchment or job losses.

But according to Vlok rather than a bad investment, the UIF’s participation was potentially a cost saving for the fund. This was based on the union’s belief that as many as 140 000 jobs could be lost – both directly at Edcon, which employs about 30 000 people, as well as in the wider clothing and textiles manufacturing sector.

In a presentation given to the UIF in January, arguing that it should help fund Edcon, the union calculated that the fund would have paid between R2.95-billion and R3.9-billion to support workers who would have potentially lost their jobs.

The UIF did not immediately respond to questions for comment but according to Edcon’s Pattison, the participating parties all contributed a roughly equal amount in cash, leaving the UIF’s contribution in the order of around R1-billion.

“Edcon is a very large employer of people and we also buy an enormous amount of goods, manufactured here in South Africa,” he said.

“Edcon’s problem is not just one of our staff, its multiplied by a factor of three or four.”

The fund’s mandate does allow it to invest in transactions that have social returns.

In response to questions early last month spokesperson for the fund Makhosonke Buthelezi, told the Mail & Guardian that the fund’s “mandate makes provision for a social responsible investment asset class of 20% of the total portfolio”.

“The intention of this asset class is to sacrifice some financial return for a higher social return,” he said.

“Should the Fund consider [investing] in Edcon in an effort to retain jobs and [prevent] the negative effects it will have on the economy, the decision will be based on a thorough due diligence process and risk impact assessment.”

The potential impact of an Edcon collapse would also have been felt by the property sector – as it occupies around 10% of some of the country’s prime mall space.

As with the UIF, there was commercial sense behind landlords participating in the deal, said Pattison.

“They looked at the potential benefit of helping us survive, albeit in a smaller shape and size,” he said.

In the run up to the deal’s announcement, Edcon was reported to have asked its landlords to reduce its rents by as much as 40%.

Pattison stressed that while most of Edcon’s major landlords had participated in the deal, not all did. There were also a number of landlords who had negotiated different arrangements with the retailer.

“The participating landlords have committed to giving us some cash and for that they get an equity stake,” he said. While some have opted to give Edcon cash upfront, others are providing cash over time – in what could be viewed as a reduced rental. Still other landlords are opting for measures such as releasing Edcon from lease agreements, to enable it to close down poorly performing stores, said Pattison, or helping Edcon renovate stores.

He could not disclose the size of the equity stake different landlords, or that the UIF, would take up. But he stressed that it was “not a particularly large share” and would not entitle them to “some special relationship with the company”.

The Public Service Association (PSA) has reacted furiously to the Public Investment Corporation’s (PIC) R5bn loan to Eskom calling it an “illegal transaction” which the union feel has “betrayed” workers.

“The PSA in the meantime is consulting with its attorneys to urgently look at declaring the whole PIC board illegally constituted after the due date of the 12 February 2018 given to the PIC to prove its board’s legitimacy,” the union, said in a statement on Monday afternoon.

The union, which represents around 200 000 civil servants has written to the PIC to complain that none of the unions sit on the PIC’s board, which they claim contradicts the PIC Act.

“If we are able to prove the appointment of the board was illegal… it will be only right that all the decisions they took are [also] null and void,” PSA deputy general manager Tahir Moapa told Fin24 by phone.

The PIC Act of 2004 states: “The Minister [of finance] must, when appointing the board, have due regard to the nominations submitted to him or her by the depositors.”

The PSA said that all parties agreed in principle not to use the R1.9 trillion in the public servants pension fund, to bail out state owned companies (SOCs), until there’s agreement that governance has improved.

“It is now clear, we cannot trust both boards to look after our members’ pension,” the union said.

Cosatu supports lifeline

The Congress of South African Trade Unions (Cosatu) differs with the PSA and supports the R5bn lifeline to Eskom, but with conditions.

“We agree to it but with the understanding that no jobs will be touched [at Eskom], Cosatu spokesperson Sizwe Pamla commented to Fin24.

Pamla added that newly appointed Eskom chairperson Jabu Mabzua cut jobs as part of a restructuring process at Telkom, when he took over as chair of the board.

He said that workers’ pensions should be used to ensure SOCs aren’t privatised, in particular the power utility as this would lead to electricity price hikes.

“We have to look at the bigger picture, the interest pf public servants should reconcile with workers broadly”, he said.

Cosatu represents around 800 000 employees in the public sector.

Pamla said they will continue with the process of trying to have worker representation on the board of the PIC itself, instead of just at the Government Employee Pension Fund (GEPF) level.

Both Cosatu and the PSA , in September 2017, objected to reports that the PIC would bail out the flailing South African Airways (SAA) and demanded that the level of union representation on the board, be improved.

The PIC on behalf of the GEPF, advanced the R5bn bridging facility to Eskom for one month. The loan will fund the company’s operations during the month of February 2018. But three other South African banks will also have to help Eskom out, the PIC stated.

Following Eskom request for assistance with its liquidity challenges, the PIC said it conducted its own due diligence and obtained approval in line with its mandate and corporate governance requirements.

By Tehillah Niselow for Fin24

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