Latin Finance - March/April 2011 - 52

chile retail sector

Bonds For Expansion

To partially finance its investment, Cencosud January 12 raised $750 million in 2021 bonds, marking a dollar market debut. The Baa3/BBB- issuer had been heard mulling a global peso tranche, which was not sold. The bond priced at 98.783 with a 5.500% coupon to yield 5.661%, or 230.0 basis points over US Treasuries, the tight end of 237.5 basis points guidance but wide to the 225.0 basis points it had first whispered. Demand for the deal reached $2.6 billion, according to bankers on it. On February 4, the bond was trading at 240.0 basis points over US Treasuries. The enthusiasm that was expected from investors for an investment-grade Chilean dollar debutant appeared somewhat dampened by concerns about the ambitious investment plan, leverage and 30% Argentine exposure in terms of sales, investors say. However, it viewed the bond as fairly priced, with slim potential for tightening. “We see 20-30 basis points of upside potential from issuance levels,” said Barclays after the issue. Elsewhere, Falabella is considering issuing around $500 million in local currency bonds in Chile, Argentina, Peru and Colombia to finance its investment plan for the next five years. It expects its 2011-2015 investment plan to add up to $3.5 billion, general manager Juan Benavides tells LatinFinance. Falabella’s investment plan for 20072010 was $2.7 billion. A date for issuance had not been set as of late January. Benavides said in mid-January that there were no plans for dollar-denominated bonds at the moment. Benavides says that in addition to bonds, the company will also use cash on hand to fund investment. In the 12 months to September 2010, Falabella reported $1.4 billion in Ebitda. The remainder could be covered with bank financing, but Benavides says no specific deals were planned as of late January. Falabella’s expansion strategy includes opening 215 stores and 16 shopping malls by 2015. Falabella’s store brands are Tottus, Sodimac and Falabella. It also has financial operations such as credit card processors and banks under the

Retail Stocks Outperform in 2010
P/E ratios beat index average Price Appreciation Ripley Falabella Cencosud IPSA Index
Source: BCI Estudios

P/E Ratio (1/3/11) 35.70 37.20 33.90 20.10

53.00% 75.60% 112.20% 36.80%

CMR Falabella, Banco Falabella, Viajes Falabella and Seguros Falabella brands. The company also has a banking license in Colombia, where it intends to expand the financial subsidiaries.

partners. But if we come up with new projects that are not in our current investment plan, we may need to get financing.” In lieu of obtaining financing, Arauco could also sell some assets, although Spoerer says no concrete plans for doing so were on the table in January. “Many of the projects we are developing, such as Parque Colina in Bogota, and Parque Alameda in Pereira, are mixed use projects that incorporate office spaces. Since offices are not part of our core business, we could always sell those while keeping the shopping centers, which are our core business,” he says.

Local Boost

Geographical Ebitda Diversification

Shopping mall developer and operator Parque Arauco meanwhile plans to invest $300 million this year to expand. “Our objective is to continue growing in Chile and to expand in Peru and Colombia,” CFO Juan Pablo Spoerer tells LatinFinance. He adds that by 2014 the company should increase market capitalization to about $2 billion. As of February, market cap stood at $1.3 billion.

Pension Fund Exposure (% of Portfolio)
Higher year-on-year Cencosud Falabella La Polar Ripley Parque Arauco
Source: IM Trust

Dec 10 10.70% 7.80% 1.80% 0.90% 0.60%

Dec 09 5.60% 3.80% 2.30% 0.10% 0.40%

“Parque Arauco’s 2010 Ebitda is around $106 million, the highest it has ever been,” Spoerer explains. “We expect that by 2013-14, Ebitda will reach $170 million. With all the investments we have planned outside of Chile, we expect that by then Peru and Colombia could represent about half our Ebitda.” Spoerer does not expect Arauco to tap the market this year. “We already have $220 million in cash on hand and we always develop projects with local

Chilean supermarket chains, as opposed to department store retailers and mall developers, are also seeking financing for their own expansions. Supermercados del Sur, owned by private equity firm Southern Cross, operates 106 outlets and is Chile’s fourth largest supermarket operator by revenues. It aims to invest $210 million through 2013 to open 80 new stores in the country. In late January, Supermercados issued 2.5 million UF ($153 million) in two local bonds. The retailer’s 1.5 million UF 4.10% of 2016 bond priced at 101.41 to yield 4.00%. A 1.0 million UF 2029 note meanwhile priced at 101.14 with a 4.70% coupon to yield 4.60%. Supermercados chose not to issue 7.20% of 2015 pesodenominated bonds or 4.30% 2020 UF bonds, which were also options, because of low demand. LarrainVial led the sale, rated BBB+/A on a national scale. Supermercados is also said to be eyeing an IPO. A spokesman at Supermercados, however, said in January that there were no concrete plans to do so. Meanwhile, Unimarc, a supermarket chain owned by local businessman Alvaro Saieh, is also expected to list on the Chilean stock exchange within the next two years. Southern Cross used to own La Polar, which went public in 2003. LF

UPDATE
For more on this story and daily news on Chilean capital markets, see www.latinfinance.com

52 LatinFinance

March/April 2011

http://www.latinfinance.com

Latin Finance - March/April 2011

Table of Contents for the Digital Edition of Latin Finance - March/April 2011