UK retailer Tesco confirms sale of S Korean business for £4 bn
07 Sep 2015
UK retailer Tesco had confirmed the sale of its South Korean business for £4 billion to a consortium of buyers led by Asian private equity firm MBK Partners, with the proceeds to go towards repaying debt.
North Asia's biggest buyout firm, MBK led an investors group which included the Canadian Pension Plan Investment Board and Temasek, the Singapore sovereign wealth fund, for the acquisition of the supermarket chain's Homeplus division.
Dave Lewis, Tesco chief executive, said, "This sale realises material value for shareholders and allows us to make significant progress on our strategic priority of protecting and strengthening our balance sheet."
Tesco will receive a cash amount of £3.35 billion in a mixture of US dollars and Korean won once tax and other costs associated with the deal had been deducted. HSBC led the sale process.
Tesco's South Korean business which started in 1999, had been touted as the ''crown jewel'' of the supermarket's international business.
The Homeplus division suffered a loss before tax of £131 million last year on sales of £5.3 billion, following the write down of its property portfolio and the falling value of its goods.
The sale effort was aimed at restoring the retailer's balance sheet and improving its credit rating.
The deal will see Tesco's total debt pile reduced from £21.7 billion at the end of February, to around £17.5 billion.
MBK Partners joined hands with a Canadian pension fund and Singapore's Temasek Holdings for the deal.
The sale is expected to produce £3.35 billion in cash, after tax and other costs, for Tesco and was expected to be completed before the end of the year.
According to retail analyst, Nick Bubb, the main aim was to cut its debt mountain and avoid a rights issue.
He added, interestingly, however, Tesco said the disposal would also give it the financial flexibility to buy some UK store freeholds.
The Homeplus deal comes as the first major disposal since Tesco reported a record pre-tax loss of £6.4 billion for the year to February.
That came against an annual pre-tax profit of £2.26 billion a year earlier.
It comes as the biggest loss posted by a UK retailer and one of the largest in the corporate history of the company.
