Strengthening Big C’s institutional book?

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HONG KONG (Dow Jones Banking Intelligence) – Thailand’s Big C Supercenter PCL is planning to raise capital through the issue of new shares in a fairly modest private placement. Following the recent successful IPO of Tesco Lotus Retail Growth Freehold & Leasehold Property Fund, controlled by Tesco plc’s Thai unit, it should instead increase its free float through a larger, fully marketed offering, including a combination of new and old shares.

One of the two leading hypermarket operators in Thailand, with a strong presence across multiple modern grocery formats and a leading national footprint, Big C’s stores can be found throughout the country and are divided between greater Bangkok and the provinces. The group has a total of 221 stores and 115 shopping malls across the nation. These include hypermarkets, supermarkets, pharmacies and proximity stores. Big C also provides retail space in the shopping malls adjoining most of its hypermarkets and supermarkets. Big C’s story has been one of increasing margins and RoE, coupled to a fairly low gearing. In mid-2011, it also fully integrated 43 stores acquired from Carrefour SA, further strengthening its platform–a rare success story among European-owned food retailers in Asia.

The group, which listed in 1992 and whose market capitalization now totals US$4.5 billion equivalent, currently trades on a high but not unreasonable P/E of 25.3 times. The shares have risen sharply this year, and have also outperformed the SET index.

The issue? A limited free float, and a concentrated shareholding, which, over time, might hinder the stock’s following, especially among institutions.

According to Big C’s website, France’s retail giant Groupe Casino owns 63.2% of Big C through two investment vehicles, Geant International BV and Saowanee Holding Group Limited. The Chirathivat Group, owners and operators of Thailand’s largest retail conglomerate, owns another 4.1% held through five individual shareholders. But the seven next largest shareholders (three of which are also individuals) account for a combined 16.2%, leaving a free float of only just above 16%. According to FactSet, 6.3% only was held by institutions, the largest 10 of which together accounted for 5.6% of Big C’s market cap. In other words, the bulk of Big C’s daily trading – still a cool and healthy US$7 million – is by retail shareholders, despite significant research analyst coverage.

At the end of last month, the Board approved – instead of a proposed rights issue – a private placement through Credit Suisse of up to 23.6 million new shares, representing approximately 2.9% of Big C’s existing share capital – or $128 million at the current share price. Proceeds have been earmarked for expansion, including the roll-out of small-format stores through a recently announced partnership with Bangchak Petroleum PCL, which provides the potential for 300 “mini Big C” openings at Bangchak filling stations over the next five years. The private placement is subject to approval at the AGM on 30 April 2012, and is expected to be completed by the end of the second quarter.

But given the size of the group and its ambitions, and in light of the recent, very successful US$450 million IPO – the largest in Thailand since 2006, with a unit price up more than 14% since early March – of Tesco Lotus Retail Growth Freehold & Leasehold Property Fund, a closed-end fund that invests in 17 shopping malls anchored by Tesco Lotus hypermarkets, there’s perhaps a rationale for Big C to tap the market for a bigger slice of its capital.

Casino could easily dilute some of its controlling stake to gather further institutional following for the shares, while at the same time raising funds to pave the way for further M&A regionally. Thailand has been regularly marred by political uncertainty and natural disasters. Big C should seize the moment and build a war chest while Southeast Asia remains in favor with market players.

(Philippe Espinasse worked as an investment banker in the U.S., Europe and Asia for more than 19 years and now writes and works as an independent consultant in Hong Kong. Visit his website at Readers should be aware that Philippe may own securities related to companies he writes about, may act as a consultant to companies he mentions and may know individuals cited in his articles. To comment on this column, please email [email protected]).

[This article was originally published on Dow Jones Banking Intelligence on 3 April 2012 and is reproduced with permission.]