LONDON, June 12 (IFR) - Ocado Group is planning to sell a debut bond to fund its UK retail capacity and improvements to its proprietary platform.
The UK online supermarket will meet investors over two-day meetings from Tuesday June 13 for a senior secured £200m seven-year non-call three-year deal.
The announcement for the UK household name has already caught the market's attention.
"We'll definitely be looking at this one," one high-yield trader said.
"It's an interesting and well-known name and it will be firmly on our radar. I expect it will go down well."
Ocado was established in the UK over 16 years ago when it entered its first branding and sourcing agreement with Waitrose. It listed on the London Stock Exchange in July 2010.
It is now expanding its presence into Europe, having announced its first non-UK partnership with a European regional retailer in early June.
Ocado also beefed up its regional presence when it signed a 25-year agreement with British supermarket Morrisons in May 2013 to provide technology, logistics and distribution services.
"The board believes that with its continued strong trading, increased scale and profitability, Ocado can benefit from the historically low financing costs in the public debt markets to put in place longer maturity financing on attractive terms," the company said in a statement.
Ocado aims to extend its debt maturity profile and diversify its sources of funding but first will have to sell its credit story to bond investors.
"The stock market has already differentiated Ocado and said you're not just a retailer, but also a tech company, and has priced them at a certain price," a lead on the deal said.
"It will be interesting to see if the debt market will buy into that. That's the difference between pricing like that, or at a premium to Tesco and Iceland."
"Or, does the high-yield market say, the tech side of it is an equity story but the credit story is just a food retail business?"
Investors nonetheless are rubbing their hands at the prospect of a well-known Double B name offering some yield.
"The problem with Ocado will be that it's a small - and potentially attractive - issue meaning that we most probably won't get any allocation as is usually the case for small hedge funds like us," a hedge fund analyst said.
Ocado holds an expected Ba3 (Moody's)/BB (Fitch) rating.
The company said in an offering memorandum sent to investors on Monday that its objective was to maintain 'an appropriate balance of debt and equity financing'.
Ocado's net assets at the end of the period were £218.2m, from £202.4m in 2013, while its net debt stands at £99.4m up from £50.9m in 2013. The group's Ebitda was £37.6m at the end of April this year, up from £31.2m for the same period in 2016.
Global coordinators are Barclays and HSBC, and joint bookrunners are Goldman, NatWest Markets and Rabobank.
The London roadshow will kick off on Tuesday at 8:30 UK time at Innholders Hall for breakfast meetings and one to ones, and will move to the Lanesborough on Wednesday, also for breakfast meetings and one to ones. (Reporting By Laura Benitez, additional reporting by Yoruk Bahceli)