Thai CP All raises 2013 capex, focus on debt refinancing

BANGKOK Tue Sep 10, 2013 8:59am EDT

Kriengchai Boonpoapichart, head of finance and investor relations at CP All Pcl, gestures during an interview with Reuters in Bangkok August 22, 2013. REUTERS/Kerek Wongsa

Kriengchai Boonpoapichart, head of finance and investor relations at CP All Pcl, gestures during an interview with Reuters in Bangkok August 22, 2013.

Credit: Reuters/Kerek Wongsa

BANGKOK (Reuters) - CP All Pcl (CPALL.BK), the retail flagship of Thai billionaire Dhanin Chearavanont's Charoen Pokphand Group, plans to refinance nearly 200 billion baht ($6.2 billion) short term debt into long term debt to control rising financial costs and boost margins, the company's finance chief says.

The $6.6 billion acquisition of cash-and-carry wholesaler Siam Makro Pcl MAKR.BK has turned cash-rich and debt-free CP All into a retailer which has the highest net debt in Southeast Asia.

Thailand's largest convenience store chain has also raised its 2013 investment budget by 15-17 percent to finance its store expansion in an attempt to maintain its leading position in the $80 billion retail sector.

"The challenge for us is costs," financial chief Kriengchai Boonpoapichart told Reuters in an interview last Friday.

"We have higher interest expenses, reversing from interest income previously, while there will be an impact from the volatility of unrealized gain or loss from foreign exchange given all loans are in dollar terms," he said.

As part of an attempt to cut debt, CP All is considering an option to dilute its 98 percent holding in Siam Makro.

"We do not need to hold 98 percent. But it's too early to say how we can do that. If we do, it will automatically boost free float and reduce debt," said Kriengchai, a former executive at the Stock Exchange of Thailand.

He said the net debt-to-EBITDA ratio, currently running at five times, should be reduced to less than three times, and an acceptable debt-to-equity ratio would be two times from 3.8 now.

As it plans to offer the first lot of its 90 billion baht bonds in the fourth quarter to refinance dollar debt, this year's capital expenditures were raised to 7.0-7.5 billion baht from an earlier announcement of 6.0-6.5 billion baht, he added.

"We still need to improve our distribution channels," Kriengchai said, adding the budget included building new distribution centers and expanding production lines of ready-to-eat food products.

The deal will also encourage Siam Makro to expand more aggressively, with plans to open about 5-7 new stores a year from 3-4 branches previously, Kriengchai said.

CP All is one of a number of major Thai companies increasingly relying on debt after series of foreign acquisitions. It has a net debt of $3.47 billion, the highest among its Southeast Asian peers, and the third highest among Asian retailers, according to Datastream.

Charoen Pokphand Foods (CPF.BK), also controlled by Thailand's richest man Dhanin, saw its debt to EBITDA - a gearing ratio - rise to 24.59 times in the first half of 2013, versus 7.85 in 2012.

CPF bought several foreign firms in recent years, including a $2.1 billion acquisition of Hong Kong-listed C.P. Pokphand Ltd (0043.HK).

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CP All, which competes with Japan's FamilyMart (8028.T) and Lotus Express, run by Tesco's (TSCO.L) Thai unit, expects Thailand's retail sector to grow an average 15 percent a year, encouraging newcomers in the market, he said.

Lawson Inc (2651.T), Japan's second-largest convenience store chain, joined forces with Thai consumer giant Saha Pattanapibul Pcl (SPC.BK) to open its first 108 shop in March and aims to open 1,000 stores in the next five years.

Family Mart also plans to open 3,000 branches in the next four years from about 913 now.

Berli Jucker (BJC.BK), a trading firm controlled by beer tycoon Charoen Sirivadhanabhakdi, has said it was keen to enter into the retail business.

CP All operates more than 7,000 7-Eleven branches, making it the world's third-largest store network behind Japan's Seven & I Holdings (3382.T) and 7-Eleven Inc in the United States. It aims to open 10,000 stores at the end of 2018.

The retailer has not experienced evidence of weak domestic consumption given about 70 percent of sales come from high-margin food products and promotion campaign, Kriengchai said. ($1 = 32.3950 Thai baht)

(Additional reporting by Patturaja Murugaboopathy in BANGALORE; Editing by Jeremy Laurence)