Tesco Plc’s (TSCO) Thai unit plans to raise as much as 18.4 billion baht ($598 million) from the sale of a fund that will buy shopping malls owned by the retailer, in what may be Thailand’s biggest initial public offering since 2006.
Ek-Chai Distribution System Co., controlled by the U.K.’s largest retailer, will offer 1.77 billion shares in the Tesco Lotus Retail Growth Freehold and Leasehold Property Fund at between 9.65 baht and 10.4 baht apiece, according to a presentation distributed by Ek-Chai today.
The fund will use the proceeds to buy 17 malls anchored by Tesco Lotus stores from the retailer. It will earn revenue by leasing the stores back to Tesco and expects to pay a total distribution of 6.5 percent to 7 percent each year, according to the statement. Cheshunt, England-based Tesco has been selling and leasing back its outlets since 2004.
“This property fund will offer investors a way to capitalize on the growth of Thai economy and retail sector,” said Christopher Bush, chief executive officer of Ek-Chai at a press conference in Bangkok. “We have a very strong pipeline of good assets that we can inject into the fund in the future.”
Tesco generated $2.5 billion in sales from Thailand in the six months through August, making the country its third-largest revenue source after the U.K. and South Korea, according to data compiled by Bloomberg. The company operates more than 900 stores, of which 133 are hypermarkets, and employs about 38,000 staff in the country, Ek-Chai said.
Tesco holds 86 percent of the voting rights in Ek-Chai, according to its annual report. Six of the 17 properties to be purchased by the fund are in Bangkok, three in tourist destinations that the retailer didn’t name, and eight in “burgeoning cities with growing disposable income,” according to the statement.
“The outlook for the retail sector is pretty good this year as the situation has returned to normal after last year’s flood crisis.” said Preeyanun Tripetchchuporn, an analyst at Phillip Securities Pcl in Bangkok. “People will start spending again, boosted by promotions by many shopping centers.”
If Tesco raises the maximum amount sought, the IPO will be Thailand’s biggest since Rayong Refinery Pcl raised 25.2 billion baht in May 2006. Tesco expects to inject an additional two assets into the property fund before the end of fiscal 2012/2013, and plans to add at least one to two assets to the fund annually, according to the statement.
Phatra Securities Pcl will manage the sale in Thailand, and Bank of America Merrill Lynch, Nomura Holdings Inc. and Royal Bank of Scotland Plc will help sell shares to overseas investors, Ek-Chai said.
Krung Thai Asset Management Pcl, a unit of Krung Thai Bank Pcl, will manage the property fund. Ek-Chai will set the price of the units on March 5, it said.
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