MARC has affirmed the rating of Tesco Stores (Malaysia) Sdn Bhd’s (“TSM”) RM750 million guaranteed commercial paper programme at MARC-1 (cg). The short term corporate debt rating of TSM reflects the credit strength of its ultimate holding company, Tesco PLC (“Tesco”), which guarantees the commercial paper programme.
TSM was incorporated on 24 July 2000 to operate hypermarkets in Malaysia. Currently, TSM operates eight hypermarkets; three in Klang Valley i.e. Klang, Puchong and Mutiara Damansara, one store each in Shah Alam, Melaka, Sungai Petani, Penang and Ipoh. TSM intends to position itself as an all-inclusive hypermarket appealing to the masses by offering a variety of goods and services of good quality at affordable pricing.

Tesco has provided an irrevocable and unconditional guarantee 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.

TSM’s revenue increased in FY2004, following the opening of more hypermarkets and higher rental income from the mall and kiosk tenants. However, as TSM is still in its maturing phase, it continued to report a pre tax loss in FY2004. TSM’s financial flexibility is deemed moderately strong, attributed to the strength of its shareholders Tesco Holdings BV and SD Holdings Berhad, which is a wholly-owned subsidiary of Tesco and Sime Darby Berhad (“SDB”) respectively.