Bangkok--25 Nov--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed Ek-Chai Distribution System Company Limited's (ECDS) debentures due 2013 and 2015, and guaranteed by UK-based Tesco PLC (Tesco), at 'AA+(tha)' with a Stable Outlook.
The ratings are based on the full and irrevocable guarantee provided by Tesco (Long-term IDR: 'A-'/Stable). However, Tesco will not be liable to pay this guarantee if: 10% or more, or THB5bn or more, of the issuer's consolidated fixed assets and its subsidiaries are expropriated or nationalised by any government agency of Thailand; if any expropriation or nationalisation prevents the issuer and its subsidiaries from pursuing their ordinary course of business; if any government agency of Thailand intervenes to prevent the issuer from transferring monies or from converting foreign currency in order to pay the obligation under the debentures; and finally, if any government agency of Thailand intervenes to cause the transfer of any shares in the issuer that removes the guarantor's status as the majority shareholder in the issuer, or from having control over it.
These risks are captured by the sovereign's 'BBB+' Country Ceiling, which reflects transfer and convertibility (T&C) risk, and sovereign intervention - such as changes in regulated tariffs, deposit freezes, punitive taxation and expropriation - that materially impairs the creditworthiness of private sector entities. The debentures' National ratings therefore take into account the capping of the guarantor's rating by the Thai Country Ceiling, which is a notch lower than Thailand's 'A-' Long-term Local-Currency IDR.
ECDS provided a 4.7% contribution to Tesco's total group sales (the second-largest contributor outside the UK) in FY11 (the year to end February 2011), and 4.9% in H112. Tesco recently announced its plan to launch a property fund comprising 15 Tesco Lotus hypermarket-anchored shopping malls in Thailand. Tesco aims to use the proceeds from the property fund to support its further growth in Thailand.
Fitch notes that any rating actions that result in Tesco's rating falling below the Thai Country Ceiling will affect the National ratings assigned to the debentures. Investors should note that a one-notch change in a global scale rating could result in a change of more-than-one notch in a National Rating.
ECDS was established by the Charoen Pokphand (CP) Group in 1993 to operate its first superstore, Lotus Supercenter, in Bangkok. Due to the 1997 financial crisis the CP Group sold its stake to Tesco in 1998. ECDS is the market leader among modern-trade retailers in Thailand, by sales and number of stores. At end-August 2011, there were 887 Tesco Lotus stores in Thailand.