Brait’s New Look debt-for-equity plan sparks selloff
Christo Wiese's investment holding company plans to cut its holding in the UK clothing chain to as low as 18% by paying creditors with shares
Less than four years after buying a 90% stake in UK fashion chain New Look for more than R14bn, investment group Brait has agreed to a bail-out deal with creditors that will see it owning no more than 18%.
News of the debt swap, which will reduce New Look’s debt to £350m (R6.2bn) from £1.35bn, sparked a selloff in Brait’s share price, which collapsed by as much as 21% to R25, the weakest level since 2012.
The share traded as high as R167 in 2016.
Brait, which wrote down the value of its holding in the group to nil in 2017, will see its stake cut to between 18% and 30%.
Brait is just the latest SA company to be caught in the middle of the demise of the UK’s retail sector since the country voted in 2016 to leave the EU, sparking concern about long-term prospects for economic growth and consumer spending. That compounded the pain inflicted by the rise of e-commerce retailers such as Amazon.com.
Famous Brands in 2018 agreed to a turnaround plan with creditors of its Gourmet Burger Kitchen chain, which it bought in 2016 for £120m.
Brait’s woes are another blow to retail magnate Christo Wiese, who has a 35% stake in the company. He lost more than $2bn when shares of Steinhoff International, which he chaired, plunged after the discovery of accounting fraud. He is suing the company for more than R50bn.
Simon Brown, a former stockbroker and founder of financial education company Just One Lap, said Brait might have overpaid for New Look, which it bought from private equity firms Permira Holdings and Apax Partners in May 2015, about a year before the shock Brexit vote.
After Brait bought New Look, the retailer announced it was expanding to China, but the move was scuppered as its financial position deteriorated.
New Look executive chair Alistair McGeorge said he was confident that the deal with creditors would set it on the right course.
"Today’s agreement represents a critical step in our turnaround plans and lays the foundations to secure the future and long-term profitability of New Look by materially deleveraging our balance sheet and providing us with the financial flexibility to better attack our future," he said in a statement.
Brown said the fact that the deal could cut interest payments, which would go to its bottom line, meant its prospects had improved. While New Look still had to deal with the fallout from Brexit and the worsening UK economy, the worst was behind it, he said. The group said annual interest payments would drop from £80m to £40m.