Three major Thai retailers would probably know by February if the embattled British retailer Tesco would opt to sell its Asian assets to shore up its finances.
Tesco Lotus, which grew out of the former Lotus chain begun by CP, currently operates 1,700 stores ranging in size from "superstores" like the one above in Chachoengsao to convenience-sized stories branded as Tesco Lotus Extra. (Photo by Post Today)
The three - Charoen Pokphand Group (CP), Central Group and Thai Beverage (ThaiBev) - among the country's richest business groups, are said to have expressed interest in buying Tesco's assets in Asia.
Tesco is looking for a way to raise funds following the crisis over its accounting practices that led to a £263 million (13.8 billion baht) profit overstatement at the world's third biggest.
Tesco's chief executive Dave Lewis recently told the media that the company was considering several options to pull itself out of the biggest crisis in its history, including a sale of all assets globally, a sale of its business in Asia and raising capitals through partnership deals.
A foreign banker who asked to not be named said Tesco appears not to have decided which option it would take.
"It would take some time for Tesco to finalise the best option, probably in February at the soonest," said a foreign banker.
According to another banker many international and local banks here are approaching the three potential buyers in a bid to be involved, either as financial adviser or more importantly a lender, in what would be one of the biggest deals of the year.
Of the three candidates, a source said Central seemed to the strongest in terms of capital given its low level of debt and high capacity to borrow capital for new investment.
The CP Group is said to be highly leveraged while ThaiBev had borrowed a huge capital recently for expansion including the purchase of the Singapore company Fraser and Neave.
Tesco's Asian assets include Tesco Lotus in Thailand, and operations in South Korea and Malaysia. The Asian operations are Tesco's most profitable and this could be a major factor for the company to consider the other options.
Tesco's assets in Thailand are estimated to more than 200 billion baht, while the South Korean's assets are slightly lower than Thailand's with the Malaysian operation being the smallest in Asia.
People familiar to CP said the group would wait for Tesco's decision. However, Tesco's Thai assets may not suit CP's strategy after it bought Siam Makro for 188 billion baht. The purchase strengthened its retail business to include 7-Eleven and hypermart-Makro, in the country.
"CP has seen its operation here is quite strong, it may not worthwhile to pay massive money for Tesco in Thailand only. But the operation overseas would well suit the regional expansion strategy," said people close to the group.
"If CP invests in Tesco UK, its policy is at least to have 20% shares in the company," added people close to the matter.
But finance is a point of concern for CP as it has spent a lot lately on acquisitions. Apart from Siam Makro, it also bought Ping An and it will need to spend more to buy the small Thai bank, LH Bank, if they can settle a price with the seller, Land and Houses Plc, a local banker noted.
A retail industry source views Central has having the most potential to buy the Thai operation, Tesco Lotus chain of superstores, to complement Central's retail business network.
For Chaoren Sirivadhanabhakdi, Tesco Lotus will be a big entry ticket to becoming a leading retailer immediately.
A retail industry source agrees that both CP and Central would look at Tesco's Asian operations rather than Thai assets only.
"For Central, it is almost a "must have" as it has done the least in business in Asia and Asean," said the source.
A foreign investment banker said that apart from Thai business groups, Hong Kong-based Dairy Farm, Japan's Aeon, Jardine Group and US retailer Walmart are all interested in acquiring Tesco's business.
However, all groups are having different level of financial sources. By far Walmart is the strongest with the ability to either buy out Tesco globally or being a partner of Tesco UK.
The three Thai potential buyers and the Tesco Lotus have refused to comment about the matter.
However, Ek-Chai Distribution System Co, the operator of Tesco Lotus in Thailand, had recently dismissed previous reports of the sale of Tesco UK's Thai assets.
It had never had revealed to the media whether it would sell assets or not, according to the company statement. "The report has shaken global staff's confidence in its employer," said the statement.
Tesco has an adjusted net debt of £6.6 billion, which is now 3.2 times its operating cash flow, and a huge pension deficit of £3.2 billion.