Edcon tipped to muddle on

Image credit: Edcon.co.za

"Whatever happens at Edcon it's going to be very difficult," said Sasfin analyst Alec Abraham, who reckons the "muddle-through" option will prevail, but only just.

The detailed Risks relating to our business and industry section of Edcon's 2015 annual report gives some idea of what the "muddling through" option might look like. It's not pleasant.

The possibility of tougher terms and conditions for additional credit could affect the group's agreements and payment terms with vendors, which prompts the possibility, says Edcon, that "we may face further liquidity pressure if our suppliers require us to pay upfront or upon delivery of products". If it can't get additional credit or secure improved "accommodations from key customers" or sell assets on favourable terms, "our liquidity position, which is severely constrained, could decline further".

Huge chunks of the risk section describe the extreme difficulty of operating under severe cash constraints. It describes the grim reality that Edcon exists on a funding knife-edge and is dependent on a number of external factors, over which it has no control, remaining "benign".

If its operations can generate sufficient cash to keep its suppliers onside and service its debt, it will face a major challenge only in 2018 when a chunk of bonds is due for redemption.

If it cannot walk the tightrope, it could try to speed up the sale of "non-core assets". But this may not generate sufficient cash. Then comes the sale of core assets, which include Edgars, Jet, CNA, and Boardmans.

Analysts are divided on whether or not the players in this highly competitive market will fight for parts of the group. The list of possible local bidders includes Pepkor, Foschini, Truworths and Mr Price. Given the recent inroads being made by international operators, these should also be considered as potential buyers.