Tesco has announced plans to raise more than US$472m by selling a slab of its property assets in Thailand through a flotation in the country.
The initial public offering (IPO) of the Thai property fund, which will be listed on the Stock Exchange of Thailand, will have an appraised asset value of more than Bt14bn, according to Tesco Lotus CEO Chris Bush, who announced the move on Wednesday.
The fund will initially comprise 15 existing shopping malls, each anchored by a Tesco Lotus hypermarket, in prime locations across Thailand, as well as freehold land and ground leases. Tesco will continue to lease all 15 hypermarkets from the fund.
The IPO will represent the largest retail property fund in Thailand, according to Tesco, with a portfolio of properties in Bangkok, provincial capitals and key tourist zones giving it unique geographical diversity.
The property fund, which will be known as Tesco Lotus Retail Growth Freehold and Leasehold Property Fund, has already been filed with Securities and Exchange Commission (SEC) and the IPO process is expected to begin in the next few months, according to Sompong Rungnirattisai, property director at Tesco Lotus.
While the fund is part of Tesco’s broader strategy to release value from its £15bn (US$23bn) international property portfolio, it also represents a move tailored to engineer expansion in the Thai market.
“The announcement of the property fund has confirmed our commitment to continue investment in Thailand for the long-term,” said Bush.
The proceeds from the IPO will be reinvested into Tesco Lotus distribution centres, refurbishing existing stores and driving expansion, he said.
“I’m delighted that it gives our customers, staff, business partners and stakeholders a way to participate in Tesco Lotus’s growth and success,” said Bush.
Tesco Lotus now runs 800 retail stores in Thailand spanning a range of formats, including hypermarkets, Talad Lotus and Tesco Lotus Express stores across 60 provinces. The stores rolled into the new fund represent around 12 per cent of Tesco Lotus’s 120 hypermarkets in this rapidly expanding market.
Thailand represents the retail giant’s third-largest market globally behind the UK and South Korea.
Tesco will hold up to 33 per cent of the total units in the property fund, in compliance with SEC regulations, which limit foreign ownership of land.
Commenting on Tesco’s move in the Financial Times, Tim Johnston complemented the retail giant on its timing, and suggested that the IPO represented a case of “profiting from necessity”.
“`The move` ticks three important boxes for new chief executive Philip Clarke,” said Johnston. “First, freeing up some of the cash tied up in Tesco’s £35bn ($55bn) global property empire; next, taking advantage of renewed investor interest in Thailand; and last, reducing some of the company’s vulnerability to legal challenges over its property ownership in Thailand.”