November 18, 2014 / 9:05 PM / 5 years ago

Tycoon Dhanin weighs buying back Tesco's $10 billion Thai unit

BANGKOK/HONG KONG (Reuters) - More than 15 years after selling out of a local supermarket chain to Tesco plc, Thai billionaire Dhanin Chearavanont is considering buying back the business valued now at about $10 billion, sources said.

Thailand’s second-richest man has had informal talks with a domestic bank to explore a bid for Tesco Lotus, whose 1,737 shops represent nearly three-fourths of all Asia outlets of the accounting scandal-hit British retailer, a person with direct knowledge of the situation said.

The move is a hallmark of Dhanin’s opportunistic deal-making style and underscores his confidence in the prospects of Thailand’s retail sector and the economy, which is under pressure following political unrest. Tesco Lotus would be the second big retail business - after Siam Makro pcl - that Dhanin had bought back.

Any bid would be made through Dhanin’s Charoen Pokphand Group (CP), Tesco’s original partner two decades ago. “CP is keen to buy Tesco’s business in Thailand,” the person said, requesting anonymity as the talks are confidential.

Other investment banks have also approached Dhanin to offer finance and advice on the deal, the people added.

CP Group’s Bangkok-based spokesman said he was not aware of the Tesco plan, while Tesco declined to comment. The sources declined to be identified as the discussions are confidential.

Tesco’s new CEO Dave Lewis, in the job for less than three months, is battling an accounting scandal and a severe slowdown in sales at home.

The British retailer, whose shares are down 42 percent this year, has not announced plans to exit any Asian markets. But with 80 percent of first-half profits eaten by interest payments, it may be forced to sell assets to repay debt and avoid its credit rating being downgraded to ‘junk’, bankers said.

Dhanin could face competition for the assets from other Thai tycoons and global retailers if Tesco decides to sell the business, bankers say. It was not immediately clear if other parties were preparing potential bids.

TESCO’S DILEMMA

Tesco’s dilemma is whether to hold on to the growth market of Thailand or sacrifice that for cash. It has already scaled back in Asia. It spun off China operations this year to a separate joint venture and operates just in South Korea, Malaysia and India.

Euromonitor International says Tesco ranks No. 2 in Thailand behind Japan’s Seven & I Holdings Co Ltd. It offers a bright spot in Tesco’s otherwise grim sales, having generated 3 percent revenue growth last year.

Euromonitor predicts Thailand’s grocery market will grow 35 percent to 2.355 trillion baht ($72 billion) by 2019. Assuming Tesco achieves 6.2 percent revenue growth in 2015, the industry growth predicted by Euromonitor in Thailand, Tesco’s sales would be 4.08 billion pounds ($6.4 billion).

That would value its Thai operations at $9.6 billion, applying a 1.5 times price-to-sales multiple at which local rival Big C Supercenter pcl trades. Tesco bought a controlling stake in Lotus from Dhanin in 1998 in the aftermath of the Asian financial crisis, paying 206 million pounds.

Dhanin is not new to bold moves. His empire includes a $9.5 billion stake in Chinese insurer Ping An Insurance Group Co of China Ltd. After selling Siam Makro in 1998, he bought back the discount retailer last year for $6.6 billion, a staggering 53 times its 2012 earnings.

“Tesco has had approaches in the past, particularly from Thai billionaires. It comes down to whether a buyer gives them something they can’t refuse,” said an Asia-based M&A banker.

Additional reporting by Khettiya Jittapong in BANGKOK and James Davey in LONDON; Editing by Lisa Jucca and Muralikumar Anantharaman

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