Tesco launches Thai property fund IPO

TESCO plc, the world's third-largest retailer, launched the initial public offering (IPO) of its Thailand property fund yesterday, aiming to raise up to 18 billion baht (RM1.9 billion) to finance future expansion.

The offering is part of a trend among retailers in recent years to squeeze more value from their real estate assets, bundling them into a property fund, selling the fund to investors and leasing back the property.

The Tesco Lotus Retail Growth Freehold and Leasehold Property Fund, as it is formally called, comprises 17 shopping malls anchored by a Tesco Lotus hypermarket in cities, including Bangkok and tourist destinations such as Krabi.

The fund "is well positioned to capitalise on the steady growth of the Thai economy, the strength of the retail sector and increasing wealth and consumption across the country," Tesco Lotus chief executive Chris Bush said in a statement.

The property fund, similar to a real estate investment trust, or REIT, will offer shares at a price range of 9.65 baht-10.40 baht (RM1.02-RM1.13) each, valuing the total deal at up to 18 billion baht, Tesco's Ek-Chai Distribution System Co unit said in a statement.

At that price, the fund would have a yield of 6.5 to 7 per cent per year. That yield would compare with 8.14 per cent for both the CPN Retail Growth Leasehold Property Fund, which owns three malls and an office tower, and movie theatre owner Major Cineplex Lifestyle Leasehold Property Fund, according to figures from the Asia Pacific Real Estate Association.

Tesco Lotus expects to add at least two more assets to the fund in the 2012/2013 fiscal year and one or two assets a year after that, according to the statement.

The IPO, Thailand's biggest since Rayong Refinery's US$710 million (RM2.15 billion) offering in May 2006, received US$40 million in commitments from US fund manager, the Capital Group Companies, two sources with direct knowledge of the deal said yesterday.

Bank of America Merrill Lynch, Nomura Holdings Inc, Phatra Securities and Royal Bank of Scotland were hired to manage the IPO.

Tesco lags only French group Carrefour and US industry leader Wal-Mart by annual sales, and has over 5,300 stores in 14 countries.

By Reuters