Swiss-based luxury goods company Richemont [JSE: CFR], which is chaired by SA billionaire Johann Rupert, is placing about R40 billion worth of bonds on the market to bolster its liquidity and for the long term development of its Maisons and businesses.
"Whilst Richemont has a robust balance sheet and more than adequate cash resources, we view it prudent to secure additional liquidity to weather potentially tougher times ahead," chief financial officer Burkhart Grund said in a statement on Tuesday.
Faced by a global collapse driven by lockdowns and the shutdown of the tourism industry, the luxury market fell by an estimated 25% in the first quarter of the year according to a report by global consultancy firm Bain & Company. The firm expects the slowdown to accelerate in the second quarter leading to a possible contraction of as much as 35% for the full year.
Reflecting the struggles in the luxury market, the 32-year old Richemont reported a profit slide for the year of 67% to about R18.6 billion.
Purple Group trading specialist Musa Makoni welcomed the move to raise liquidity.
"It (the transaction) will mainly help with providing a cash pile they can rely on, should they want to take on new ventures, or for working capital purposes," he said, adding that the main challenge for most businesses during the Covid-19 pandemic is liquidity.
Market analyst Wayne McCurrie said Richemont was "very well" capitalised with no balance sheet and cash flow issues.
"They have been paying out high dividends over the last few years, but they have reduced this year as a result of the virus," said McCurrie. "Interest rates are also very low at the moment and Richemont is taking advantage of this."
The share price was trading 2.3% stronger on Tuesday afternoon and for the year is down 7.8%.
Reflecting on the impact of Covid-19, Rupert last week assured that its Maisons would "survive these difficult times" and be supported by the balance sheet. Rupert said there would be "headwinds" in the months ahead, given that the luxury industry depends on customers' willingness to spend. Richemont, however, is expecting its Maisons and online shopping to pull it through the storm.
"Since our 462 boutiques in China have re-opened after the virus, we have seen strong demand. Equally, the steps we have taken in recent years to change the way we operate [will see] the Maisons well positioned," Rupert said. "In times when tourist traffic is impacted by concerns over the virus, internet shopping has proven to be a key avenue and will remain key to the growth of our business," he added.
Bain expects any recovery in the market to be led by the Chinese consumer, who'll account for 50% of the market by 2025.