SINGAPORE/BANGKOK Jan 22 A local currency hit
by months of political unrest, and skittish consumers spending
less are keeping the pressure on Thai billionaire Dhanin
Chearavanont, who heads Asia's most indebted food retailer.
Dhanin's CP ALL PCL, which operates 7-Eleven
convenience stores, last year took a 1-year $5.8 billion loan to
fund the $6.6 billion acquisition of cash-and-carry wholesaler
Siam Makro - paying 53 times earnings in Asia's most expensive
consumer sector deal by multiple.
At the time, Dhanin promised investors to more than halve CP
ALL's leverage - its net debt to EBITDA ratio - to just above 3
times by 2017 from an estimated 8 times, the highest among all
food and staples companies in Asia, Thomson Reuters data show.
He hoped to do that by adding 500-600 stores a year, but
that expansion is threatened by Thailand's political fragility
and an economic slowdown that have seen the value of the Thai
baht slide by nearly 14 percent since last April. The
government on Tuesday imposed a state of emergency in Bangkok
and surrounding provinces to help contain street protests aimed
at forcing Prime Minister Yingluck Shinawatra to resign.
"There would be three risks," said Nirgunan Tiruchelvam, a
Singapore-based analyst for Standard Chartered, who rates CP ALL
stock as 'underperform'. "One is the depreciation of the
currency; second is the roll-out of new stores may not be as
aggressive; and finally, whether same-store sales will measure
up to the valuation that the company has."
The political crisis affected domestic consumption in the
fourth quarter and would likely drag down retailers' profits
from the previous quarter, said Mintra Ratayapas, an analyst at
KK Trade Securities. "Sentiment in the retail sector has already
been hit by weak domestic consumption. In Q4, same-stores sales
at Big C and Robinson were negative; the
rest faced slower-than-expected growth," she said.
This could potentially squeeze Dhanin's efforts to trim his
debt load, with some bankers saying he may look to raise equity
or sell assets into a property fund.
CP ALL shares have fallen more than 11 percent since late
last month, but are up by a quarter since hitting 17-month lows
Dhanin was not available to comment, but Kriengchai
Boonpoapichart, head of finance and investor relations at CP
ALL, said: "We still have great faith in Thailand's future
prospects and maintain our target for growth and expansion."
A DROP OF DILUTION?
Investment bankers say Dhanin may have to dilute his
holdings in various companies or sell assets via a property
"First thing would be public equity. I don't think their
mentality is to hive off anything, but they would look at
diluting," said a senior banker, who has a close relationship
with Thai corporations.
Dhanin's flagship Charoen Pokphand Foods sold $290
million of bonds earlier this month that will be exchangeable
into CP ALL shares.
A second banker said: "Dhanin isn't keen on equity
fundraising while the group still has other options, such as
selling some Siam Makro assets into a property fund."
Such a fund could be backed by rental income from 7-Eleven
stores or other retail businesses. These listings are popular in
Thailand as they provide investors a yield play while offering
companies long-term capital. Dhanin's telecom unit, True Corp
, sold a $1.8 billion fund in December, packaging fixed
assets like telecoms towers and cables.
The impact of the street protests and economic slowdown on
7-Eleven stores has been mixed. A salesperson at one outlet in
central Bangkok told Reuters that sales had halved since
protests began in November, but another salesperson at a second
store said sales had risen slightly in the past week.
When CP ALL's takeover of Siam Makro was announced last
April, the baht was near a 16-year high, prompting Dhanin to
keep a third of the dollar loan, some $2 billion, unhedged
against any slide in the local currency.
CP ALL sold 50 billion baht ($1.52 billion) bonds in late
October, using the proceeds to trim that unhedged portion to
around $400 million, or 7 percent of its total debt, banking
sources and analysts said.
The group is in talks with banks to replace the outstanding
$4.2 billion loan with 40 billion baht ($1.22 billion) of bonds
and a longer-term syndicated loan by next month, a banking
source told Reuters.
"Given that the rest of the bridging facilities will end in
the middle of the year, we're working on long-term refinancing,
which may include another corporate bond issuance and long-term
loans from financial institutions," Kriengchai wrote in an
emailed response to Reuters questions for this article.
But in the process, Dhanin could take a hit from the baht's
slide, losing an estimated $30 million to date from positions
related to the Siam Makro acquisition, Reuters calculations
In its third-quarter earnings released in November, CP ALL
took a 391 million baht foreign exchange loss - a small portion
of the paper loss it could incur. "The losses were driven by the
unhedged position of approximately $2 billion foreign currency
debt used to acquire MAKRO," Macquarie said in a note then. "We
deem this unhedged exposure effectively a speculating on
currency which is not (a) prudent funding policy."
Dhanin also took on a big dollar loan from UBS to
part finance last year's $9.4 billion acquisition of HSBC's
stake in Ping An, China's No. 2 insurer -
part of a total $27 billion acquisition splurge by Dhanin and
Thai beer tycoon Charoen Sirivadhanabhakdi in 2012-13.
Thai credit default swaps trade at
151.5/161.5 basis points, the highest since August, with the
cost of insuring $10 million of Thai debt now at around
$160,000, about $60,000 more than when street protests began
late last year.
"He (Dhanin) paid top dollar, valuation-wise, and top dollar
in terms of where the baht was at that time," said the senior
"You're coming off a set of forecasts, or a view of the
world that was probably a lot more rosy to be able to justify
that valuation, and now you're hit by the reality of what the
economy is going to be in 2014.
($1 = 33.0500 Thai baht)
(Additional reporting by Michael Flaherty and Umesh Desai in
HONG KONG, Manunphattr Dhanananphorn in BANGKOK, Patturaja
Murugaboopathy in BANGALORE and Masayuki Kitano in SINGAPORE;
Editing by Ian Geoghegan)