Eddy Fashion Holdings $($EFH$)$ is South Africa$$s oldest and biggest retailer by assets and is listed on the Johannesburg Stock Exchange. In the recent years the company has struggled to deliver impressive results as it faces serious competition from both local and international retailers. The company$$s share price was trading at $4598$ cents on $01$ October $2018,$ at the start of the financial year, but had lost about $52\%$ of its value by the end of September $2019$ as it recorded a net loss of R$109$ million. With no dividend declared at the end of the year, this loss brought the company$$s net asset value down to R$1269$ billion. EFH$$s significant shareholders include the Public Investment Corporation $(22\%),$ Rembrandt Group $(19\%)$ and African Rainbow Capital $(15\%).$ Only $50\%$ of the company$$s authorised shares remains unissued.

Part B $$ REPAYMENT OF DEBT

EFH has the following interest$-$ and dividend$-$bearing facilities at $30$ September $2019$:

Preference share capital: The three million preference shares were issued three years ago at a nominal cost of R$605$ per share, which bear a fixed dividend yield of prime$+20$bps$.$ Similar shares are estimated to be trading at R$581$ each. The redemption date of all these shares is $29$ September $2025.$

Debentures: $10-$year term debentures for R$3144$ million were also issued around the same time as the preference shares above. The finance costs $($net of tax$)$ on these debentures amount to R$249$ million per annum. The premium and the annual administration costs are waived, but there is a once$-$off administration fee of R$15$ million payable on $30$ September $2025.$ Debentures structured in this manner incur interest at prime lending rate.

Long$-$term loan: A loan of R$871,5$ million was obtained on $2$ October $2018$ and its capital is repaid in three equal annual instalments. The fixed $11\%$ interest is also paid on the last day of each financial year. Similar loans bear an interest rate of about $9,75\%.$

Subordinated debt: EFH also obtained an unsecured subordinated debt from African Rainbow Capital for R$2010$ million on $10$ October $2015$ at an equivalent interest rate of prime$+2.$ Similar subordinated debt facilities are estimated to yield an interest at prime lending rate.

Short$-$term loan: The loan for R$450$ million was obtained from CreditSis Bank at prime lending rate and is repayable on $28$ February $2020.$ The loan was taken out to settle unexpected legal costs after the company was embroiled in a price$-$fixing scandal. The company was forced to take out this loan due to low cash reserves at the time. The cash position of the company has since improved as EFH closed the year with more than R$300$ million of cash and cash equivalents and a zero balance on its bank overdraft facility.

The interest expense on this loan for the year ending $30$ September $2019$ was R$26$ million. Similar loans and overdraft facilities are generally priced around prime$+1.$

Part D $$ ADDITIONAL INFORMATION

$$ EFH undertakes projects that have an internal rate of return of at least $20\%.$

$$ As at $30$ September $2019,$ EFH had $840$ million authorised ordinary shares.

$$ The South African corporate income tax is rate $28\%.$

$$ Prime lending rate is $10,25\%$ and the cost of equity is $15,2\%.$

Calculate the following ratios:

Interest$-$bearing debt equity ratio $($net$)$

$$ Current ratio

$$ Return on equity

$$ Price$/$book ratio

$$ Cash interest cover

Calculations $5$ marks; comments $12$ marks