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Carrefour seen eyeing Brazil listing to help fund expansion

The appointment of a financial and IPO expert to head its Brazilian operations signals Carrefour (CARR.PA) may list a stake in that business, as Europe's largest retailer looks to accelerate growth in a key market without adding to its debt.

With its core French business on the mend, Carrefour chief executive Georges Plassat has said he wants to speed up expansion in the fast-growing emerging markets of Brazil and China, but has yet to say how.

In October, Plassat signaled he was gearing up for an offensive in South America's top economy by naming 56-year old Charles Desmartis to head the holding company controlling all of Carrefour's Brazilian operations.

Desmartis' mission is to renovate an ageing store network and take on competitors Grupo Pao de Acucar (GPA) (PCAR4.SA), owned by France's Casino (CASP.PA), and Wal-Mart (WMT.N).

But after a big drive to cut Carrefour's debt, Plassat is anxious that any extra investment does not drive borrowings back higher, leading to speculation of a partial listing in Brazil.

"They must accelerate in Brazil without weighing on the balance sheet. The idea would be that Brazil finances itself," said Raymond James analyst Cedric Lecasble.

"Any solution that would combine an acceleration in Brazil with a solid balance sheet would be well received by investors."

Desmartis' experience in spearheading the initial public offering (IPO) of Schlumberger's smart card unit Axalto in 2004 and as head of Carrefour's financial controls since 2011 has added to speculation that a Brazilian listing is in the works.

"Things are heating up in Brazil. I think an IPO could take place within six months, provided there is no big macro-economic incident," said another analyst, who asked to remain anonymous.

Carrefour declined to comment.

The French group would not be alone to float assets next year as German rival Metro (MEOG.DE) aims to list up to a quarter of its Cash & Carry Russia business in London by the second quarter of 2014, according to sources.

Plassat, who has said that an IPO is a funding option among others in Brazil, has already shown a taste for plans that involve minimal levels of new financing, having struck a deal with investors earlier this month to buy a string of shopping centers at little cash cost to Carrefour.

Brazilian business magazine Exame also said in October that Carrefour had mandated bankers to prepare for a possible Brazilian listing.

Analysts estimate Carrefour's Brazilian business is worth about 7-9 billion euros ($9.6-$12.3 billion) and suggest the company might float a 25 percent stake. Other options include listing only property assets and/or finding local partners.

Options for Growth

Under Plassat, who took over as CEO in May 2012, large scale asset sales helped Carrefour cut net debt to 5.9 billion euros at end-June 2013 from 9.6 billion at end-June 2012.

This also allowed the world's second-biggest retailer behind Wal-Mart to boost capital expenditure to 2.2-2.3 billion euros this year from 1.6 billion in 2012, or 2 percent of sales.

Analysts say it will need to find more money to take advantage of growth opportunities in Brazil and elsewhere.

With sales of 12.5 billion euros in 2012 and 68,000 employees, Brazil is Carrefour's second-biggest market after France, making 14.5 percent of group sales.

Brazil has been a bright spot for Carrefour at a time of weak European growth, with like-for-like sales up 8.8 percent in the third quarter 2013 against 3.1 percent for the group.

By market share, and excluding GPA's Ponto Frio e Casas Bahia appliance business, Carrefour is now nearly at par in Brazil with GPA at 14 percent against 11 percent for Wal-Mart.

Carrefour's growth, however, lags that of GPA, which reached 12 percent in the third quarter.

"Carrefour did not give itself the means to build a strong leadership in Brazil. From 2009 it barely opened any store beside Atacadao," said PlanetRetail analyst Gildas Aitamer.

In Brazil, Carrefour operates 102 hypermarkets, 41 Barrio supermarkets, and 93 Cash & Carry Atacadao stores, a chain it bought in 2007. This compares with over 1,000 stores for GPA, which earmarked capital spending of 2.02 billion reais for 2013 against an estimated 1 billion for Carrefour.

Analysts suggest Carrefour could step up the expansion of Atacadao, which they estimate makes over 50 percent of its sales and profit in Brazil, and which is coming under pressure from GPA's Assai Cash and Carry brand.

It could also add more hypermarkets, which are still relatively rare outside Brazil's major cities, while convenience stores are another potential area for growth as its portfolio of 41 supermarkets is far smaller than GPA's, which had 162 Extra supermarkets at end-2012 and is expanding its Minimercado chain.

Carrefour has sizeable property assets in Brazil as well, which Barclays analysts estimate could be worth around 2 billion euros and which could also be used in a future listing.

Another option could be for Carrefour to team up with property companies to build and rent offices and shopping malls on the land it owns next to its hypermarkets.

Carrefour and Brazilian property groups Cyrela and Odebrecht have kept silent about reports they were discussing the matter.

[Source: By Dominique Vidalon, Reuters, Paris, 24Dec13]

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