Feb 3, 2015
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South Africa's Edcon plans job cuts in cost savings drive

Feb 3, 2015

JOHANNESBURG, South Africa -  South African retailer Edcon plans to slash jobs at its head office to reduce costs, it said on Tuesday, as the debt-burdened company tries to save money to repay bondholders.

A source familiar with the matter told Reuters the job cuts would also target Edcon's budget-friendly clothing unit Jet and CNA, its stationary, books and electronics division.

Jet Mart is Edcon's budget-friendly clothing unit

Concerns are growing about Edcon's ability to repay bondholders after Morgan Stanley published a note in September supporting a short position of the company's debt, saying the capital structure was "unsustainable".

Once must-haves in fund managers' portfolios thanks to credit-fuelled spending in recent years, South African retailers have been struggling to grow sales at faster rate after over the past 12 months as credit providers pull back due to rising defaults.

"This process may result in a reduction of headcount within Edcon's head office. We cannot confirm numbers as yet," the company said in a statement.

Speaking on condition of anonymity, the source said: "The restructuring will also be at Jet and CNA, meaning there would be jobs losses there as well as at head office level."

Company officials declined to comment on whether there would be job cuts at Jet and CNA.

After Morgan Stanley's note, Edcon's 425 million euros ($482 million) bond due in 2019 plummeted to a price of just 47 cents, meaning the bonds were worth less than half of their face value.

The bond has since slumped further, however, bid at just 32 cents in the secondary market on Tuesday morning, according to Tradeweb.

Rating agencies, Moody's and Standard & Poor, cut Edcon's debt further into junk territory, citing poor outlook for consumer spending in South Africa.

Edcon is trying to find a lender to secure credit for shoppers who do not meet the criteria of primary provider, Absa, a unit of Barclays Group Africa.

In November, the company reported a loss of 1.1 billion rand in the 26 weeks to Sept. 27, from 1.3 billion a year earlier.

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