Iceland Foods and New Look are set for yet another sale as South African conglomerate Brait revealed plans to dispose of its stakes in both UK retailers within five years.
Johannesburg-listed Brait, in which tycoon Christo Wiese is the largest shareholder, needs to reduce its debt and on Wednesday said it was planning a recapitalisation to raise equity and reshape its balance sheet.
The company built up stakes in New Look, Iceland and gym operator Virgin Active from 2011 as part of a strategy to hold large interests in unquoted retail and consumer businesses outside South Africa.
It owns 63 per cent of Iceland, a frozen food retailer that has around a 2.5 per cent share of the UK’s grocery market.
Brait’s stake in New Look was diluted down to 19 per cent this year when the fashion retailer restructured its own debt burden, imposing heavy losses on its bondholders.
One London-based banker said it was unlikely that either business would return to the stock market in their current form. “New Look’s bonds are telling you that the equity is worthless. It will probably end up being fully controlled by its bondholders,” he said.
The banker added that the company was probably too big for specialist investors such as Alteri and OpCapita to take on, and that a stock market flotation would be a hard sell given market conditions in the UK.
“Brait will adopt a new strategy that will focus on maximising value through the realisation of its existing assets in the portfolio over the next five years and returning capital to shareholders,” the company said in a statement to the Johannesburg Stock Exchange.
The changes would be the latest phases in the often turbulent histories of these businesses, both of which have changed owners in the past decade. New Look was taken private in 2004 by Permira, Apax and founder Tom Singh, before Brait paid £780m for the business in 2015. Two years later it wrote down the value of the equity stake to zero. Following the recapitalisation, other shareholders include Alcentra, CQS and Avenue Capital and 5 per cent is set aside as part of a management incentive plan.
Iceland became a public company in 1984 but was acquired by Icelandic investment group Baugur in 2005 after a disastrous merger with wholesaler Booker. Following Baugur’s collapse, Iceland’s founder Malcolm Walker and his team bought the company back with support from Brait, Dubai-based Landmark Group and sofa tycoon Graham Kirkham. Landmark and Lord Kirkham were bought out in 2015.
The remaining stake in Iceland that Brait does not hold is owned by Sir Malcolm, his son Richard and other members of the management team.
The supermarket chain is trading solidly — new store openings meant sales rose 2.4 per cent in the first half — but is heavily leveraged. Its net debt of £736m is more than five times its earnings before interest, tax, depreciation and amortisation. Although Iceland has been a listed business before, Sir Malcolm has previously expressed a preference for operating it privately.
Both Iceland and New Look declined to comment.
Mr Wiese has suffered heavy losses as a result of his exposure to Steinhoff, another South African conglomerate in which he owned a large stake and which revealed a major accounting fraud in 2017.
Steinhoff is also liquidating its assets to cut debt. Last week, it said it would sell its holdings in UK furniture retailers Bensons for Beds and Harveys to a fund managed by Alteri Investors.
John Gnodde, head of Brait’s corporate adviser BSAL, will step aside early next year as part of the group’s recapitalisation plan. Mr Gnodde, the brother of Goldman Sachs International chief executive Richard Gnodde, is also a director at New Look and one of Iceland’s parent companies and will be “assisting the investee companies in ensuring a smooth handover.”