Poundland is preparing to close up to 200 stores and make steep rent cuts, as it seeks a financial overhaul aimed at keeping the business afloat ahead of a possible sale.

According to reports in The Telegraph, the discount chain has drawn up plans to seek rent reductions on up to 500 locations, while earmarking between 150 and 200 stores for closure. The business currently trades from over 800 sites across the UK and employs around 16,000 people.

The proposals form part of a turnaround plan overseen by managing director Barry Williams, and are expected to be handed to the chain’s new owner once the sale completes. Distressed investors Hilco and Gordon Brothers are reportedly the final two bidders.

The rent reductions are understood to range between 10% and 50%, and the business could also exit sites through a court-sanctioned restructuring. Such a move would require approval from a judge.

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A potential new owner would also be expected to invest between £70m and £100m to stabilise the business.

The plan comes amid tough trading conditions. Parent company Pepco downgraded its outlook for the chain last month, revealing a 6.5% drop in sales to £830.8m for the six months to 31 March. It now expects full-year underlying EBITDA of £0 to £16.8m, well below earlier forecasts of up to £59m.

“The focus of the group and advisers is currently on a potential sale of Poundland. This is an ongoing process and no final decisions have been taken,” a Pepco Group spokesperson said.

The news follows confirmation last month that Modella, the owner of The Original Factory Shop (TOFS), had dropped out of the Poundland auction.