CREDIT ANALYSIS REPORT

Tesco Stores (Malaysia) Sdn Bhd - 2004

Report ID 2069 Popularity 2104 views 37 downloads 
Report Date Jun 2004 Product  
Company / Issuer Tesco Stores (Malaysia) Sdn Bhd Sector Trading/Services - Retailing
Price (RM)
Normal: RM500.00        
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Rationale
MARC has assigned a short term corporate debt rating of MARC-1(cg) to Tesco Stores (Malaysia) Sdn Bhd (“TSM”) proposed RM750 million guaranteed commercial paper programme. Proceeds from the programme will be utilised by TSM to finance the expansion of its operations i.e. constructing new hypermarkets, refinance its existing loans and other general funding requirements.

The short term corporate debt rating of TSM reflects the credit strength of its ultimate holding company, Tesco PLC (“Tesco”), which is guaranteeing the proposed commercial paper programme and carries the following international ratings:


Moody’s A1/P-1
Standard & Poor’s A+/A-1
Fitch Ratings A+/F1


TSM was incorporated on 24 July 2000 to operate hypermarkets in Malaysia. The company was established via a joint venture agreement between Tesco Holdings BV (“THBV”) and SD Holdings Berhad (“SDHB”), which are wholly-owned subsidiaries of Tesco and Sime Darby Berhad (“SDB”) respectively. Under the joint venture agreement, THBV owns 70% of TSM shares while the remaining is held by SDHB.

TSM plans to develop and operate a chain of hypermarkets in Malaysia, with an expected investment of up to RM1.6 billion over the next five years. During that time, TSM aims to open between 15 and 20 hypermarkets. Currently, TSM operates five hypermarkets; three in Klang Valley i.e. Klang, Puchong and Mutiara Damansara, one in Melaka and one in Sungai Petani which opened in December 2003. TSM intends to position itself as an all-inclusive hypermarket appealing to everyone by offering a variety of goods and services of good quality at affordable pricing.

Tesco and Mayban Trustees Berhad (“Mayban Trustees”), as the trustee for the commercial paper holders, will enter into a Guarantee Agreement whereby an irrevocable and unconditional guarantee will be provided by Tesco to Mayban Trustees in respect of all sums owing by TSM under the Trust Deed for the payment of the guaranteed liability of up to RM750 million. Under the Guarantee Agreement, Tesco undertakes that whenever TSM fails to pay any amount of the guaranteed liability due, it shall, within five business days of receiving any demand from Mayban Trustees, pay the stipulated amount.

Under the Guarantee Agreement, Tesco will continue to guarantee TSM’s liability due under the commercial paper programme for as long as Tesco or any of their subsidiaries is still the majority or controlling shareholder of TSM. However, Tesco will not be liable to pay for any amount pursuant to the Guarantee Agreement if TSM’s failure to pay the guaranteed amount is due to certain political risks exceptions (please refer page 3 of the credit analysis report for further details).
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