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Aeon Says Yen’s Climb Provides Growth Opportunity That’s Too Great to Miss

Aeon Co., the Japanese retailer that’s made the most acquisitions in the past five years, is opening overseas stores faster than initially planned as the yen’s climb to a postwar high boosts its purchasing power.

The opportunity to expand now is “too great” to miss, Seiichi Chiba, chief financial officer at Japan’s largest supermarket operator, said in an interview yesterday. “If we were to miss this strategic opportunity, we would not be able to recover for 10 or 20 years.”

Japan’s biggest supermarket company is opening stores in China, Vietnam and Cambodia under plans to boost investment there to 25 percent of its total by 2013 from 8 percent in 2009. The owner of the Jusco general-merchandise retail chain said in February it bought a stake in department-store operator Parco Co. partly to ease expansion in overseas markets including China.

“One merit of a strong yen is that it has allowed us to accelerate our investments overseas and bring forward our store openings,” Chiba said at the company’s headquarters in Chiba prefecture, adjacent to Tokyo. “All the cash injections from Japan can be brought forward.”

Aeon fell 0.1 percent to 1,046 yen at the 3 p.m. close of trading in Tokyo, while the broader Topix index fell 1.7 percent. The stock has gained 3 percent this year, compared with an 18 percent decline for the Topix.

Photographer: Junko Kimura/Bloomberg

Seiichi Chiba, chief financial officer of Aeon Co. Close

Seiichi Chiba, chief financial officer of Aeon Co.

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Photographer: Junko Kimura/Bloomberg

Seiichi Chiba, chief financial officer of Aeon Co.

Fast Retailing

Fast Retailing Co., Asia’s largest clothing chain, plans to expand overseas to tap the strength of the yen, which climbed to a postwar high of 75.35 to the dollar on Oct. 31. Fast Retailing Chief Executive Officer Tadashi Yanai, Japan’s second-richest man, said the Japanese currency’s strength may allow him to buy a company bigger than his.

Aeon had cash, near-cash and short-term investments of about 325 billion yen at the end of last fiscal year, a 33 percent increase from two years earlier.

The company had 1,277 supermarkets in Japan in August, with 9 in China, 4 in Malaysia and 20 in Thailand. For its general- merchandise outlets, it had 537 in Japan, 30 in China and 23 in Malaysia.

The supermarket chain’s push for growth outside Japan is matched by domestic expansion that’s propelled by acquisitions.

Aeon agreed to pay 45 billion yen ($577 million) last month for supermarket chains Marunaka Co. and Sanyo Marunaka KK, boosting its business in western Japan with its biggest purchase since 2008.

The Marunaka deal prompted Standard and Poor’s Ratings Services to revise its outlook on Aeon’s credit rating to negative from stable. The acquisitions and other investments Aeon has made this year “will cause the company’s financial risk profile to deteriorate,” S&P said in a report dated Oct. 6.

Recovery Period

Holding the debt-to-equity ratio at about 1.0 is also important to keep the credit rating in the A range, Chiba said. S&P has an A- rating on Aeon, its lowest in the A range and four levels above non-investment grade. The retailer had a debt to equity ratio of about 1 at the end of last fiscal year, compared with 1.2 in the previous year, according to data compiled by Bloomberg.

“Fiscally, we will be able to recover in one or two years,” Aeon’s chief financial officer said. “If you put fiscal health and discipline above everything else, the chances of missing out on a growth opportunity will be too great.”

Net income will probably be between 63 billion yen and 68 billion yen for the year ending February 2012, compared with 60 billion yen a year earlier, the company said last month.

The yen’s climb prompted Japan to sell its own currency Oct. 31 to help stem the erosion of exporters’ earnings. Finance Minister Jun Azumi has said he will “continue to intervene until I am satisfied.”

The yen has gained 3.3 percent against the dollar in the past six months, the best performance among 10 developed-nation peers tracked by Bloomberg.

To contact the reporter on this story: Shunichi Ozasa in Tokyo at sozasa@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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