Ek-Chai Distribution System, the operator of the Tesco Lotus megastore chain, has successfully completed a placement of baht bonds |worth Bt4 billion as it aims for further business expansion in Thailand.
CEO Steve Hammett yesterday told The Nation he was very satisfied with the response from institutional investors, who have oversubscribed the issue by more than six times.
"This marks the first time since we started our business here that we have gone to the market to raise funds. In a way, it reflects our maturity as a business organisation, and the investors have also seen this," said Hammett.
By going directly to the capital market to raise funds, Ek-Chai |is tapping a low-cost pool of savings.
The company's baht bond is divided into two tranches: a three-year bond and a five-year bond. The former fetches an interest rate of 3.02 per cent, compared to 3.78 per cent for the latter.
The company previously chiefly relied on short- and long-term bank loans to finance its business operations.
Initially, Ek-Chai intended to raise only Bt3 billion from the bond placement, but it decided to increase the amount to Bt4 billion to meet demand from institutional investors, ranging from insurance funds, mutual funds, government-related agencies and funds, to financial institutions.
HSBC is the company's financial adviser for the issue, which is fully guaranteed by Tesco of the United Kingdom. Fitch Rating has assigned an AA+ rating for the baht bond.
Hammett said the proceeds would be used to finance Tesco Lotus's expansion and operations this year, since the company normally needs to invest about Bt7 billion annually.
Last year, the company opened six hypermarkets, 10 supermarkets and 60 Tesco Lotus Express convenience stores. "We plan to make a similar investment this year," he said.
Ek-Chai, which was purchased from the CP Group by the UK's Tesco in 1998, is the market leader among modern-trade retailers in Thailand in terms of both sales and number of stores.
It has achieved continuous sales growth of more than 10 per cent, with an improving margin and positive cash flow from operations since its 2007 financial year.
Ek-Chai operates largely with four formats: hypermarkets (81 stores), compact hypermarkets or Tesco Lotus Value stores (30), Talad Lotus (58) and Tesco Lotus Express (445). It employs about 36,000 staff.
Modern retail trade in Thailand is dominated by four players: Ek-Chai/Tesco Lotus, Big C Supercentre (owned by the Casino group of France and the Chirathivat family, the majority shareholder of the Central Pattana group), Carrefour from France, and the Makro cash-and-carry wholesaler (owned by SHV group of the Netherlands).
Ek-Chai's major competitors are Big C Supercentre and Carrefour. Makro focuses on different target groups, such as traditional retailers, hotel and restaurant operators and corporate customers.
Ek-Chai has the largest market share in dry groceries in the modern-trade market at 51 per cent of sales, followed by Big C Supercentre with 32 per cent.
Modern retailers' combined share of the dry-grocery market increased to |22 per cent last year |from about 17 per cent in 2006, thanks to an aggressive push since 2007.
In 2008, the overall value of the retail trade in Thailand - modern trade, department stores, convenience stores and traditional retail shops - was about Bt1.4 trillion, or the equivalent of about 20 per cent of gross domestic product, according to Fitch Rating.
Due to continued expansion of major modern retailers and promotional activities by department stores, retail trade achieved growth of 3 to 4 per cent in 2008 and the first half of last year, despite the sharp economic slowdown, said the rating firm.
Ek-Chai's sales grew 14.5 per cent year on year in its 2009 financial year to Bt123.78 billion from Bt108.07 billion in 2008, in line with an increase in the number of stores.
The firm's margin rose slightly to 10.4 per cent from 9.9 per cent in 2008. This resulted in a 20.1-per-cent year-on-year rise in earnings in absolute terms to Bt12.9 billion.
