Thai retailer CP All’s 7-11 convenience stores are a ubiquitous sight in Thailand, particularly in the capital city of Bangkok, where it is hard to walk a few blocks without stumbling upon one. But it was the retailer’s audacious $6.6 billion acquisition of cash and carry discount retailer Siam Makro last year that put the company on the map for M&A bankers.
Amid low rates and strong liquidity in baht bond markets, CP All, controlled by Thailand's richest man Dhanin Chearavanont, in April completed refinancing a $5.8 billion bridge loan taken to fund its acquisition of Siam Makro.
Still, its debt levels are lofty. CP All's net debt to Ebitda is eight times but the company plans to lower those levels. "We will be looking to reduce [net debt to Ebitda] to less than half within the next three to four years, partly from debt repayment and the growth of Ebitda," Kriengchai Boonpoapichart, head of finance at CP All told FinanceAsia in an interview held in Bangkok.
CP All is also exploring other ways to further reduce its debt levels and has been approached by banks with ideas on how to do that, said Boonpoapichart.
One option could be re-floating Siam Makro’s shares, to meet minimum free float requirements by the Stock Exchange of Thailand. "There can be a plan in the future to refloat the shares back to the market,” said Boonpoapichart, adding that it could take some time to do so.
CP All owns 98% of Siam Makro, which remains listed on the Thai stock exchange, and its 2% free float is below the 15% required by the exchange. Thai listed companies usually have about a year to comply with the free float requirements and as Siam Makro’s free float fell below 15% in September last year, its deadline is in September this year. However, according to Boonpoapichart, CP All can pay a minimal fee to get an extension to the deadline.
CP All is also exploring the idea of spinning off Siam Makro’s properties into a fund and is open to other options. “If there is any opportunity to do a property fund, Reit, [or sell to] strategic investors, that would make the de-leveraging faster,” said Boonpoapichart.
However, one Bangkok-based retail analyst believes that CP All ought to wait for more time to pass before spinning off Siam Makro's properties into a trust. "I don't think it’s a good idea for them to do a Reit quickly as they have not injected any value into the properties as yet. If CP All doesn't need money, they should wait and get some capital appreciation before selling it," said the retail analyst.
According to Boonpoapichart, CP All is also not averse to keeping its entire stake in Siam Makro. “If the business is so good, why do you share with someone else? Who knows in the next couple of years, it may be better to keep it for ourselves,” he added.
Refinanced bridge loan
CP All’s acquisition of Siam Makro has coincided with a slowing economy. Thai retailers are struggling as consumer spending has taken a dip. Anti-government protests, which started in October last year, have hit the country's growth and, in 2013, the country’s GDP grew by only 2.9%, less than half the 6.5% posted in the previous year.
In addition, the company has seen high interest expenses eat into its profits. During its fourth quarter last year, the retailer’s net profit fell 30% to Bt2 billion from a year ago. Its net profit margins halved to 2.2% compared to the same period in 2012, hurt by a high interest expense of Bt1.2 billion ($37 million) and a net foreign exchange loss of Bt147 million ($4.5 million).
CP All has taken steps to address investor concerns over its US dollar currency exposure by replacing the majority of its $5.8 billion bridge facility with baht borrowings. Including hedging costs, the cost of the $5.8 billion one-year bridge was about 5%.
The company has also been able to extend its debt maturity at competitive rates. In April, CP All secured lenders for a baht loan of about Bt80 billion ($2.5 billion), with an average duration of about six years, said Boonpoapichart. The lenders included Siam Commercial Bank, KrungThai Bank, Standard Chartered, Sumitomo Mitsui Banking Corp and Bank of Ayudhya.
It also secured a US dollar loan of about $310 million with a tenor of more than two years from foreign lenders, said Boonpoapichart, adding that less than 10% of CP All’s borrowings are now in US dollars and that its borrowing costs from its loans are about 5% on average.
The rest of the bridge loan was refinanced through two baht bond issues. In October last year, CP All issued a Bt50 billion bond in four tranches - three, five, seven and ten-year - in what was the largest baht issuance from a Thai company on record. The company paid coupons of 4.1%, 4.7%, 5.1% and 5.35%.
In March this year, it followed this up with another Bt40 billion worth of bonds, with the same tenors as the previous issue, paying coupons of 3.7%, 4.3%, 4.9% and 5.1% respectively. It managed to get cheaper funding in its second round, as investors were expecting the Bank of Thailand to cut the benchmark rate at that time.
With competitive funding available in the domestic bond market, CP All is considering issuing more baht bonds to replace its existing loans. On April 24, shareholders approved a proposal to issue another Bt90 billion worth of bonds to repay bank borrowings. “If the market environment is good and cost of financing through bond issuance is more favourable than banks, we can go for that,” said Boonpoapichart.