March 13 (The following statement was released by the rating agency)
Fitch Ratings (Thailand) Limited has assigned Thailand-based retailer CP ALL Public Company
Limited's (CP ALL) secured bonds an 'A+(tha)' National Long-Term Rating.
Simultaneously, the agency has affirmed CP ALL's National Long-Term Rating at 'A+(tha)' with
Stable Outlook and National Short-Term Rating at 'F1(tha)'. The rating on the company's
outstanding secured bonds is also affirmed at 'A+(tha)'.
The bonds, which will total up to THB40bn, will be issued in eight tranches due
in 2017, 2019, 2021 and 2024. The bonds will be secured by shares of Siam Makro
Public Company Limited (Makro) held by CP ALL. The proceeds from the bonds will
be used to refinance some of the bridging loans from banks, which CP ALL used to
finance its acquisition of Makro.
The secured bonds are rated at the same level as CP ALL's National Long-Term
Rating as the bonds are secured on a similar basis to CP ALL's existing secured
bridging loans and secured bonds issued in October 2013, which represent more
than 90% of CP ALL's total debt. CP ALL plans to refinance the remaining
bridging loans with term loans from banks and/or bonds with a similar secured
KEY RATING DRIVERS
Dominant Market Position: CP ALL is the largest operator in Thailand's
convenience store business, with more than 7,000 stores nationwide. It commands
a market share of approximately 60% of the stores, far above the second-largest.
CP ALL is very likely to maintain its dominant position despite high
competition. It is supported by its larger network and coverage, as well as
well-established supporting functions - such as logistics, supply and
maintenance, and staff training and development.
Strong Retail Brand: CP ALL operates 7-Eleven stores, a leading international
brand for convenience store chains. The company was granted an area licence
agreement for Thailand from 7-Eleven, Inc., USA, with the first store being
opened in 1989. Thailand is now the second-largest international licensee of
7-Eleven, Inc., after Japan.
Diversifying into Wholesale: The acquisition of Makro, the sole market leader in
Thailand's modern wholesale food retail market, represents CP ALL's first foray
into this segment. This should also enlarge and widen its customer base. CP ALL
has become the largest food retail company in Thailand following the acquisition
Defensive, but Strong Growth: CP ALL benefits from the "defensive" cash flow
nature of the sector, where the product offerings are essential to everyday
life, with low revenue and margin volatility, while the growth potential is
underpinned by Thailand's immature market for modern food retail. The expected
sharp sales growth in 2014 will be driven partly by full-year consolidation of
Makro. CP ALL's strong growth over the medium term is likely to continue,
propelled by new store openings and like-for-like (LFL) sales growth, although
LFL sales growth is likely to slow in 2014.
Weak Credit Metrics: Given CP ALL's expected strong cash flow generation, its
high financial leverage after the Makro acquisition is likely to improve over
the next four to five years. While Makro's more aggressive expansion plan may
result in negative free cash flow (FCF) in 2014, Fitch expects the deleveraging
should be only slightly delayed, with funds flow from operations (FFO)-adjusted
net leverage to reduce to 5.0x-5.5x by 2015 and to below 3.5x by 2017 (2013:
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
- A slower-than-projected deleveraging with FFO-adjusted net leverage remaining
significantly above 5.0x in 2015 and above 3.5x in 2017
- A deterioration in EBITDAR margin to below 8.5% on a sustained basis (2013:
- Negative free cash flow generation for two consecutive years
A positive rating action over the next 12-24 months is unlikely due to the
company's high financial leverage.