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December 13, 2007 |
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GRUPO GIGANTE: Asset Sale Prompts Fitch's Watch Evolving Fitch Ratings has placed the ratings of Grupo Gigante, S.A.B. de C.V. on Ratings Watch Evolving following the announcement of the assets sale of its supermarket division to Organizacion Soriana, S.A.B. de C.V. As part of the transaction, Grupo Gigante will sell the operations of 199 supermarkets located in Mexico under the formats, Bodega Gigante, and Super G, and seven units located in the United States for US$1.35 billion. The transaction includes the transfer of all leased property related to the supermarket units and the corresponding distribution centers. In addition, Grupo Gigante will retain ownership of its owned store locations and will lease these to Organizacion Soriana. The agreement stipulates a non compete agreement for five years. The agreement is still subject of approval by the Shareholder Meeting of Grupo Gigante and by COFECO, the antitrust authority. Fitch currently rates Grupo Gigante's Issuer Default Rating and US$260 million senior notes outstanding at 'BB'. Following the divestiture, the size and scope of Grupo Gigante's retail operating activities will be substantially reduced as the supermarket operations represent the majority of the company's operating assets. The remaining operating assets will include several other smaller retail formats including Radio Shack, Office Depot and Toks restaurant chain. While the business strategy and use of proceeds remain unclear at this point, bondholder protections related to asset sales restrictions and covenants will likely result in the prepayment of the US$260 million in outstanding Senior Notes. The company has started a tender offer to repurchase the outstanding Senior Notes. The transaction will consolidate Organizacion Soriana's position as the second largest supermarket chain in Mexico, and will further diversify and expand the company's geographic coverage, particularly in the central region of the country, including the Metropolitan Area of Mexico. Opportunities to increase efficiency gained from additional economies of scale and greater purchasing power seem plausible. The transaction will likely add leverage and weaken Organizacion Soriana's currently unleveraged financial profile, however, the magnitude of the financial weakening will likely depend on the ultimate funding strategy. At Dec. 31, 2006, Grupo Gigante and Organizacion Soriana had revenues of MXN32,471 million and MXN58,360 and EBITDA of MXN1,782 million and MXN4,671 million respectively. With over 600 units in Mexico, Grupo Gigante, S.A. de C.V., is a public Mexican trade company, which operates in the Mexican Stock Market -- Bolsa Mexicana de Valores. Through its subsidiaries, Gigante has developed leading chains of supermarkets, family restaurants, and specialized commerce, for 43 years. Its saubsidiaries include 'Gigante', which contains formats including: 'Gigante' (Hypermarkets), 'Super Gigante' (Supermarkets), 'Super Maz' and 'Bodega' (Warehouses), all of them supermarket chains, as well as 'Cafeterias Toks, S.A. de C.V.,' a specialized family restaurant chain. With its partners, Grupo Gigante has also established joint ventures, developing Office Depot de Mexico, S.A. de C.V., a Mexican leader chain store of office and school supplies, and Radio Shack de Mexico, S.A. de C.V., an exclusive format with presence throughout the Mexican Republic, that offers a wide assortment of electronic equipment and accessories. |
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