July 20, 2017 / 1:53 PM / a year ago

Fitch: Grupo Carrefour Brasil's IPO Paves Way for Accelerating Expansion

(The following statement was released by the rating agency) PARIS/LONDON, July 20 (Fitch) Fitch Rating says the IPO of Carrefour SA's (BBB+/Stable) Brazilian subsidiary, Grupo Carrefour Brasil, fits well in the group's strategy of further developing outside of its core, mature French market towards countries offering more attractive long-term growth prospects. Following the IPO, Carrefour will hold 73.5% (minimum of 71.3% if the secondary greenshoe is fully exercised) of its Brazilian subsidiary, Peninsula (Brazilian investment holding owned by Brazilian retailer Abilio Diniz) 11.5% and the free float will be 11.5% (maximum of 17.3% if the secondary greenshoe is fully exercised). Following Peninsula's acquisition of a 12% stake in 2014-2015, Fitch views the IPO as a way to further diversify the financial resources of Grupo Carrefour Brasil. We believe this subsidiary of Carrefour is likely to receive an increasing share of the group's investments over the coming years. The IPO is also a means to increase the group's visibility to local investors. Fitch understands from management that the IPO proceeds, which are expected to range between EUR1.3 billion and EUR1.4 billion, will be used to repay debt. At the Brazilian subsidiary level this provides additional financial flexibility to execute expansion plans in a market that is not yet mature. At group level, Fitch believes that the impact of a higher portion of dividends to be paid to non-controlling interests on Carrefour's financial profile will be broadly neutral as debt repayment will lower finance costs. Grupo Carrefour Brasil has weathered well the Brazilian economic recession due to its high exposure to recession-proof hybrid cash & carry format, Atacadao. Brazil is Carrefour's second-most important market behind France, generating close to 30% of the group's recurrent operating income in 2016. However, competition is intensifying with notably, Grupo Pao de Acucar (also known as Companhia Brasileira de Distribucao, AA(bra)/Stable), the 33%-owned subsidiary of French rival Casino Guichard-Perrachon SA (BB+/Stable), investing heavily in its cash & carry Assai format and launching important commercial initiatives to revive sales in its Extra hypermarkets. Carrefour's management announced its willingness to consolidate the group's leading position in Brazil by accelerating expansion (70 store openings in 2017 versus 61 in 2016), notably towards its most successful (Atacadao) or less developed convenience formats, renovating its hypermarkets and further developing its e-commerce channel. The pricing of the IPO, the biggest in Brazil since 2013, was in the low range of expectations at 15 Brazilian real per share. Fitch believes that this mainly reflects the difficult economic environment prevailing in the country, currently rated 'BB' on Negative Outlook. This means weak growth prospects and weaker governance indicators compared with peers, while repeated episodes of political instability have undermined policy-making, spelling negative implications for the economy. This is notwithstanding Carrefour's strong position in Brazil and long-term positive sector trends. Contact: Anne Porte Director +33 1 44 29 91 36 Fitch France SAS 60 rue de Monceau 75008 Paris Pablo Mazzini Senior Director +44 20 3530 1021 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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