October 30, 2007 / 7:39 PM / 12 years ago

Tesco raises $2 bln ahead of U.S. store opening

LONDON, Oct 30 (Reuters) - British retailer Tesco (TSCO.L) announced on Tuesday its first dollar-denominated bond issue as it seeks to drum up investor support beyond its home shores.

The $2 billion debt raising, Tesco’s largest in more than a year, comes as international investor interest in the company is fanned by the opening on Nov. 8 of its first U.S. stores, in California, under the “Fresh & Easy Neighborhood Market” brand.

A spokesman said Tesco, the world’s third-largest retailer, had chosen to issue in the U.S. dollar market “because they want to introduce U.S. bond investors to Tesco, establish themselves in a new market, and diversify their investor base.”

The debt would go toward refinancing existing debt and “general corporate purposes,” he said, declining to provide further details.

Tesco, with operations in 12 countries, holds A+ credit ratings from Standard & Poor’s and Fitch Ratings, and an equivalent A1 rating from Moody’s Investors Service, all on the fifth-highest level of investment grade.

Standard & Poor’s said on Tuesday Tesco’s rating was “underpinned by its increasing international diversification.”

Tesco has a tradition of innovative debt issuance, banking on the lure that its strong business and high credit rating has to institutional investors, particularly pension funds.

In February, it joined the 50-year sterling bond market elite with a 500 million pound ($1.03 billion) deal that one banker said was four times oversubscribed within hours of the announcement.

A month later Tesco tapped seemingly voracious demand for long-dated debt with a rare 40-year, 600 million euro bond.

Tesco has said it plans to invest 250 million pounds a year in the United States with the long term aim of building a business at least equal in size to its British operation. Its Web site already shows the location of more than 120 stores.

The world’s biggest retailer after after U.S. Wal-Mart (WMT.N) and France’s Carrefour (CARR.PA) is also expanding rapidly in emerging markets including China, Thailand and South Korea, which analysts expect to drive its growth.

Citigroup analysts in a recent note said Tesco’s U.S. launch could “potentially go down as a genuine turning point in the industry, possibly comparable with Wal-Mart’s decision to start opening Supercenters in the 1980s.”

The Tesco debt sale included $850 million of 10-year notes yielding 1.18 percentage points more than U.S. Treasuries and $1.15 billion of 30-year bonds priced to yield 1.53 percentage points more than Treasuries.

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