JD Group shares jump on imminent lending unit sale

JD Group, the South African furniture retailer controlled by Steinhoff International Holdings, gained in Johannesburg as investors took encouragement from the sale of its lending unit.

JD said late on Monday it agreed to sell the division to an international consumer-finance provider in a deal that will reduce future funding requirements at the Johannesburg-based company. The shares rose as much as 6.9% to R24.

“JD Group doesn’t want to fund the book and this allows it to focus on its retailing and product range,” Mark Hodgson, an analyst at Cape Town-based Avior Capital Markets, said by phone. “It won’t necessarily restrict lending to consumers any more than JD Group would have had it kept the business.”

The transaction provides a boost for the unprofitable company, which has struggled with rising bad debt in its consumer finance operation and raised about R1-billion through a rights offering earlier this year. The offering was underwritten by furniture maker Steinhoff, whose stake in the retailer now stands at about 86%.

South African consumers have been struggling to repay loans amid high unemployment and slower economic growth. Ellerine Holdings, another furniture retailer, which was owned by African Bank Investments, applied for business rescue, akin to Chapter 11 bankruptcy, last month as losses mounted amid falling sales and increasing bad debt.

JD shares traded at R23.60 as of 9.46am in Johannesburg. They’ve fallen 18% this year as the FTSE/JSE Africa General Retailers Index has gained 9.2%. – Bloomberg

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