CP's spending spree

Thailand continues to produce M&A deals, spurred on by cheap funding and quiet rivalry among the kingdom's tycoons.
Dhanin Chearavanont
Dhanin Chearavanont

Thailand’s richest man, Dhanin Chearavanont, has done plenty of shopping during the past few months. The 74-year-old tycoon helms Charoen Pokphand Group, an unlisted entity with stakes in a sprawling web of listed enterprises, including poultry company CP Foods, convenience store operator CP All and telco True Corp.

His hobbies include raising bantam chickens for cockfights and he shows no signs of backing down from challenges despite his age. Nor has he turned cautious. To the contrary, he has been doubling down on his bets.

In February, CP Group bought HSBC’s 15.5% stake in mainland insurance company Ping An Insurance for $9.4 billion. The deal was the biggest purchase by a foreign company in China and attracted plenty of controversy, not least because there are lingering questions over how the group funded it. UBS was said to have extended a $5.5 billion loan.

The dust had yet to settle before CP All, one of the group’s listed companies, made a Bt189 billion ($6.6 billion) offer for Siam Makro in April. This will be the biggest domestic Thai takeover, assuming 75% of shareholders vote in favour of the acquisition at a meeting on June 12.

With two multi-billion dollar acquisitions under his belt, anybody else would have been sitting pretty. But the shopping spree might not be over. Last week, China’s biggest meat producer, Shuanghui International, made a surprise $7 billion offer for Virgina-based hog producer Smithfield Foods in the US. According to a source, CP Foods — the listed agribusiness flagship of CP Group — had also lined up financing to buy Smithfield Foods.

Few expect CP Foods to wage a battle for Smithfield Foods as it is seen to be a strain on the company’s debt level. Indeed, its statements last week seem to suggest that it is backing off. It congratulated both Shuanghui and Smithfield Foods, and stated that while it was studying the opportunity to buy Smithfield, it came with “a very limited time frame”.

Having already loaded up on debt, observers note that the group is starting to look stretched. However, bankers suggest that the group can make further acquisitions through its listed entities.

“CP has plenty of listed entities and can raise equity,” says one banker. “So far, all the acquisitions have been made with debt — but the group has CP Foods, CP All and CP Indonesia, which all have sizeable market caps. I’d imagine if they were going to make acquisitions, they would use the listed companies to do so.”

To be sure, Chearavanont is not the only Thai tycoon who has been active. The kingdom has thrown forth some of the biggest M&A deals in the region, with its richest men seemingly in quiet competition with each other. TCC Group, a conglomerate controlled by Charoen Sirivadhanabhakdi, made a $7.2 billion offer for Singapore-listed Fraser & Neave in September last year. Shortly after that, CP Group announced its bid for Ping An.

For the banks with the relationships, the recent spending spree is great business. However, CP is loading up on debt and looking increasingly over-leveraged. Which is fine when things are hunky dory. But when things turn, the family silver is usually the first to go. Chearavanont has gone down the road of having to sell off businesses as he over-extended his empire during the Asian financial crisis. It would be a shame to see that happen again.


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