October 19, 2012 / 4:40 PM / 5 years ago

Chile's Cencosud shares tumble as it funds acquisition

SANTIAGO (Reuters) - Chile’s Cencosud said on Friday it will propose a capital increase and bond issue to buy French retailer Carrefour’s Colombian assets, sending shares in the Andean nation’s largest retailer tumbling.

The Chilean retailer will seek approval of a $1.5 billion capital increase and issue $1 billion in bonds on the U.S. market to help repay a $2.5 billion bridge loan with JP Morgan Chase Bank it is using for the purchase.

On Thursday, Cencosud CEN.SN said it had inked the $2.6 billion purchase agreement, which would be the biggest acquisition by a Chilean firm abroad to date.

Cencosud shares tumbled 6.2 percent Friday, closing at 2,630.90 pesos the lowest in more than a year, as analysts questioned the Colombia purchase’s pricetag and the operation’s potentially long turnaround time.

“In general, analysts feel that this isn’t a cheap purchase (and) that it isn’t adding value to the company. Also, current shareholders are going to see their stakes diluted somewhat by the capital increase,” said Rodolfo Tapia, analyst at Banco Penta in Santiago.

But analysts don’t expect Cencosud shares to slide much further.

The capital increase, though, is also seen pressuring Santiago’s blue-chip IPSA .IPSA index, which had only risen around an accumulated 2.0 percent this year as of midday Thursday, as investors will need to cash in shares to participate in the operation.

“The IPSA isn’t going to take off this year, the capital increase is going to keep pressure on it. Remember that Cencosud has around a 5-6 percent weighting on the index,” Tapia said.

PURCHASE PRICE QUESTIONED

Espirito Santo brokerage said the price paid by Cencosud equates to 1.33 times enterprise value to sales, representing a 30 percent premium to where Colombia market leader Exito IMI.CN currently trades.

“I hope that in the short-term rather than in the long-term, the market will recognize that investing in Colombia and buying this asset was a good decision,” CEO Daniel Rodriguez said at a news conference.

When Reuters asked about whether the acquisition price was too high, Rodriguez highlighted Cencosud was buying Colombia’s second biggest retailer and that 85 percent of the stores it was acquiring are operated on property it will own.

    “With property you can develop the real estate business and boost other formats.”

    The Carrefour (CARR.PA) deal will give Cencosud 72 hypermarkets, which combine grocery and department stores; 16 convenience stores; and 4 cash-and-carry stores in Colombia, adding to the some 900 stores and 26 commercial centers it operates in the region. It expects to close the deal by the end of the year.

    Cencosud aims to propose the capital increase to shareholders in Chile and the United States within the next 120 days and issue the 10-year bonds within the next 90 days. The firm said it will have $7 billion in debt following the planned purchase in Colombia.

    The firm has raised more than $1 billion this year to fund expansion across South America and repay debt.

    Cencosud, which listed on the New York Stock Exchange earlier this year, recently acquired Brazilian supermarket chain Prezunic and Chilean department store Johnson‘s, and also has operations in Argentina and Peru.

    The retailer said it doesn’t expect its credit rating to suffer as a consequence of the operation. Cencosud added it hoped the shareholders meeting would be held around November 20.

    Reporting by Anthony Esposito. Writing by Alexandra Ulmer & Anthony Esposito

    0 : 0
    • narrow-browser-and-phone
    • medium-browser-and-portrait-tablet
    • landscape-tablet
    • medium-wide-browser
    • wide-browser-and-larger
    • medium-browser-and-landscape-tablet
    • medium-wide-browser-and-larger
    • above-phone
    • portrait-tablet-and-above
    • above-portrait-tablet
    • landscape-tablet-and-above
    • landscape-tablet-and-medium-wide-browser
    • portrait-tablet-and-below
    • landscape-tablet-and-below