What is CP’s gameplan?

Thailand’s richest man Dhanin Chearavanont keeps the deal mill turning.
CP Lotus' supermarket stores have been underperforming.
CP Lotus' supermarket stores have been underperforming.

Thailand's richest man Dhanin Chearavanont continues to keep the deal mill turning. Earlier this week CP Lotus, which is partly owned by CP Group, inked a HK$2.3 billion ($296 million) agreement with Chinese supermarket operator Wumart. The latter bought 36 stores from CP Lotus through a share- swap deal.

CP Lotus' supermarket stores have been underperforming and the company posted a net loss of Rmb46.7 billion in the six months to June-end, so it was perhaps no surprise that the company decided to partner with a local player -- much like other foreign retailers such as Tesco.

But the CP Lotus share swap is merely the latest in a string of deals struck by Chearavanont and entities controlled by him. The gameplan is unclear but with banks keen to lend CP money, the company looks likely to remain busy.

The company has shown an insatiable appetite for deals. It earlier bid for US hog producer Smithfield Foods but lost out to Shuanghui International.

CP Group has now teamed up with private equity firm Carlyle in its bid for Parknshop. It is not the first time the two have teamed up, but Carlyle's presence is interesting and one wonders what kind of exit option the private equity firm has in mind.

There are challenges to inking that deal. Li Ka-shing is a savvy seller who is likely to demand top dollar for Parknshop. So if he parts with Parknshop, it is unlikely to come cheaply. Other bidders such as China Resources Enterprises have pulled back, uncomfortable with the valuations touted.

Rich valuations haven't put Chearavanont off before. Earlier this year, convenience store operator CP All acquired Siam Makro for a princely sum of $6.6 billion, more than 13 times the price CP Group sold it for in 2005 and a lofty 53 times Siam Makro's 2012 earnings per share.

Siam Makro is widely expected to spearhead CP All's regional expansion since its 7-11 operations in Thailand are a franchise, not an own brand, and hence difficult to take abroad -- a point made by the company's management at the time of the deal.

It isn't clear whether CP Group will transfer Parknshop to CP All -- if indeed it does win the bid. Analysts warn that doing so would put even more pressure on CP All's already-stretched balance sheet. CP All's earnings are expected to weaken in the third quarter due to expenses related to Siam Makro and possible foreign exchange losses, according to a research report by Standard Chartered.

CP Group is a private entity and its financials are not disclosed.

What seems clear is that the company has racked up its borrowings -- having also bought a 15.6% stake in Ping An for $9.4 billion in February. But with loan bankers still circling CP isn't short of suitors for funding. 

That , for now, ought to keep the spending spree going.

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