Walmart Inc. is selling bonds to help finance its acquisition in India’s biggest e-commerce firm Flipkart, stuffing the US investment grade market with another jumbo deal just two days after the second-largest of the year.
The company is offering fixed- and floating-rate bonds in as many as nine parts, according to a filing on Wednesday. The longest portion of the offering, a 30-year security, may yield around 1.2 percentage points above Treasuries, according to a person with knowledge of the matter, who asked not to be identified because the details are private.
Walmart, the world’s largest retailer, said last month it will acquire a 77% stake in Flipkart Group for $16 billion, leaving the remainder to Flipkart co-founder Binny Bansal and other shareholders. The Flipkart-Walmart deal gives the US retail giant access to India’s fast-growing e-commerce market as the company tries to challenge Amazon.com Inc. Walmart acquired e-tailer Jet.com Inc. for about $3.3 billion in 2016.
Just a week before Walmart announced its plans for a stake in Flipkart, it agreed to cede control of its British business, Asda, to a competitor for $10 billion. The sale reflects chief executive officer Doug McMillon’s strategy to focus on high-potential markets, such as China and India.
The mega bond issue follows a $15 billion offering from Bayer AG, which priced the second-largest bond sale of the year on Monday to help fund its acquisition of Monsanto Co.
Potential downgrade
The Flipkart-Walmart deal has drawn heavy skepticism from Wall Street, prompting several equity analysts to either cut their price target for Walmart’s stock or place it under review. S&P Global Ratings said there’s about a 33% chance it may downgrade Walmart’s AA rating in the next two years due to the company’s “aggressive global deal-making” as it tries to compete with Amazon.
Leverage will rise to about 2 times Ebitda — earnings before interest, tax, depreciation and amortization—and debt will jump by more than $10 billion, compared to S&P’s expectation for a $5 billion reduction. Walmart also plans to continue its current share buyback program, indicating a “potentially less conservative financial policy” going forward, S&P analyst Diya Iyer said in a 9 May report.
Barclays Plc, Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp., HSBC Holdings Plc and Wells Fargo & Co. are managing the bond sale, according to the filing.
Source: Mint