CP All is becoming as much a feature of Thailand’s capital markets as its 7-Eleven stores are on the country’s streets.
The convenience store unit of Dhanin Chearavanont’s Charoen Pokphand Group intends to refinance Bt180bn (US$5.19bn) of debt in the local bond market in the coming years, and needs to float at least 13% of its Siam Makro subsidiary, according to Kriengchai Boonpoapichart, CP All’s head of finance and investor relations.
“We believe in tailoring our financial-management strategy to the bond markets, where rates are very low and our credit rating of A+ is in our favour,” said Kriengchai in an interview.
CP All only entered the bond market following the Bt189bn acquisition of Siam Makro in 2013. It ended up holding 98% following a general offer for the shares, but the company needs at least 15% of the shares to be in public hands to maintain its listing status. At current prices, the sale of a 13% stake will fetch about Bt20.5bn.
CP All has not set a timetable for the disposal, but it expects the sale to help lower its leverage from 5.9x at the end of June. The company’s target is to reduce leverage to less than 3.5x.
Siam Makro’s thinly traded shares are down 7% since the start of the year, underperforming a broader market that has gained 19%.
Credibility
CP All reported total group revenue of Bt215bn in the six months to June 30, up 11.5% year on year. Its profit before tax rose 23.6%, putting it in an enviable position in a sluggish local economy.
The company’s latest financing underlined its popularity among Thai institutional investors, allowing it to double the size of a multi-tranche bond offering to Bt12bn in August.
However, it has not all been plain sailing.
Last December, the Securities and Exchange Commission fined executive chairman Korsak Chairasmisak and vice chairmen Piyawat Titasattavorakul and Pittaya Jearavisitkul, as well as Athueck Asvanund, vice chairman of True Corp, another CP Group unit, a combined Bt33.3m for insider trading.
They were accused of using inside information to buy Siam Makro shares ahead of CP All’s 2013 acquisition.
Despite the charges, all three CP All executives retained their posts, prompting protests from institutional investors and threats to boycott a Bt7bn multi-tranche bond issue in March.
Ultimately, the threats had little impact, as the bonds were sold successfully with support from insurance, cooperative, corporate and high-net-worth investors.
August’s successful Bt12bn financing suggests CP All has put all that behind it.
“A lot of institutional investors are back to support CP All, mainly because we can see there is improvement in the approach to address its corporate governance issues,” said one mutual fund investor.
“The directors have also agreed to forego their attendance fees, which is a way of showing regret and apology.”
Looking ahead
Having survived the corporate governance storm, CP All is now looking to the future, with a target of running 10,000 7-Eleven stores by 2018, up from 9,200 today.
Kriengchai said a potential initiative could be looking at how Siam Makro’s assets could be monetised to reduce the debt taken to acquire it.
Equity bankers have pitched the idea of spinning off Siam Makro’s property assets through a listed trust, but no firm decision has yet been taken.
In the near term, CP All will be busiest in the bond markets, where it has been able to stretch maturities and increase its flexibility since its 2014 debut.
CP All’s decision to refinance its Siam Makro acquisition loans with bonds was a big gamble. As it was a debut issuer, investors were not familiar with its credit profile and it had an ambitious plan to raise Bt40bn in one go.
To mitigate the risks in getting the size it wanted, CP All was willing to secure the bonds against shares of Siam Makro.
The debut issue was an instant success and was increased in size to Bt50bn. It was used partly to refinance the bridge loan, alongside US$4bn of bank borrowings in US dollars and baht.
The following year, CP All raised a total of Bt90bn through three separate issues – the proceeds of which were used to refinance all its baht loans. Having established its credibility with both institutional and retail investors, the company took the next step of freeing its security in 2015, when it refinanced secured bonds with unsecured notes.
“Now, we have built reputation and credibility, we are starting to put more features into the bonds, such as subordinated (as in unsecured) and non-guaranteed notes,” said Kriengchai. “We have put options in the bonds, such as early redemption without penalties, unlike bank loans.”
CP All is unlikely to redeem its bonds any time soon as it is putting revenues back into the business to grow it.
“As long as we can manage the leverage and service debt, manage our liabilities well and grow the business, there won’t be a cost to all our stakeholders.”
