• Landlord Liberty Two Degrees (L2D) on Monday announced it had revalued the shares it holds in Edgars parent company Edcon – and written them down by more than 30%.
  • L2D is the first company to report results since Edcon struck a restructuring deal with landlords, banks, and the PIC, and at first glance the write-down seems like terrible news for Edgars and its news shareholders.
  • But L2D says it is a happy shareholder, and Edgars is doing fine.
  • For more stories, go to the Business Insider South Africa homepage.

On Monday landlord Liberty Two Degrees (L2D) said it had re-evaluated its shares in Edgars parent company Edcon – and sliced a little more than 30% off the value it had previously ascribed to those shares in its books.

But even though that looks like a terrible signal about the future of the huge retail chain, L2D says it is a happy Edcon shareholder and that everything it can see shows Edgars is doing just fine, the accounting treatment notwithstanding.

L2D is just being prudent, its CEO Amelia Beattie told Business Insider South Africa.

The write-down is little more than a rounding error on the books of L2D, which holds a property portfolio worth well over R10 billion in the form of part-ownership in the likes of Sandton City and Melrose Arch. The Edcon write-down, meanwhile, is worth R7.7 million, or about 2.3% of the net property income it reported on Monday for the six months to the end of June.

L2D is a small holder of Edcon shares, but a 30% change in the value of the Edgars operations would be hugely more significant for other new shareholders introduced as part of a restructuring – such as the Public Investment Corporation (PIC), which controversially pumped R1.2 billion into the chain to keep it afloat.

Earlier this month former PIC CEO Dan Matjila told an inquiry he had lost his job because he would not agree to the Edcon deal. And the Public Servants Association, which claims a membership of 240,000, cited the Edcon investment as a reason it no longer wanted the PIC as the sole asset manager for government pensions. 

In total, landlords, the PIC, and banks pumped R2.7 billion into Edcon in either cash or reduction in the rent it pays in a deal that received regulatory approval less than three months ago.

L2D is the first new holder of Edcon shares to report results, and the value it places on those results.

But the L2D write-down is not based on any information not available to other shareholders, and is not based on a deterioration in trade at stores, said the landlord's financial director Jose Snyders.

In fact, the Edgars in Sandton City was trading better than it had before the restructuring, and L2D considered Edcon a safer tenant that it had before the deal.

In short Edgars was "meeting expectations", he said – the accounting treatment of the shares based on a complex discounted cash flow methodology notwithstanding.

"We're just being prudent in how we're reflecting the underlying shares," said Beattie.

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