Cencosud Declines Most in Latin Index on $2 Billion Share Sale for Growth

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  • Posted on April 12, 2011

    Cencosud SA Chairman Horst Paulmann. Photographer: Morten Andersen/Bloomberg

    Cencosud SA, Latin America’s third- biggest retailer, fell the most among stocks in the region’s benchmark index after unveiling plans to sell as much as $2 billion of new shares to help finance growth.

    Cencosud dropped 4.8 percent to 3,331 pesos at 2:02 p.m. New York time. The MSCI EM Latin America (MXLA) Index slid 2.2 percent.

    The company controlled by German-born entrepreneur Horst Paulmann called an April 29 shareholder meeting to propose the sale of as much as $2 billion of new stock, according to a notice published today in El Mercurio newspaper that didn’t give details. Cencosud wants to be ready for acquisition opportunities that may arise, a company official briefed on the proposed transaction said by telephone.

    “The company’s financial position is very good and they have said that this would be to finance inorganic growth,” said Carmen Concha, an analyst at Banco Santander SA in Santiago.

    The proposal gives the company three years to sell the shares, the company official, who declined to be identified because terms aren’t set, said today by telephone. There isn’t a defined date for any share sales, the official said.

    Planned Expansion

    Cencosud plans to invest about $1 billion this year in the five Latin American countries where it operates, according to its website. The International Monetary Fund raised its growth forecasts for Latin America and the Caribbean, estimating expansion of 4.7 percent this year and 4.2 percent in 2012, in its World Economic Outlook report released yesterday.

    Paulmann resumed a regional expansion in late 2009 as Chile’s economy recovered from its steepest slump in a decade. In the year before the global credit crisis slowed consumer spending in Latin America, he spent about $1 billion buying up retailers in Brazil and Peru and expanding the Easy home- improvement chain to Colombia.

    Cencosud agreed to pay $814 million for Brazil’s Supermercados Bretas in October last year, its biggest acquisition since the 2005 purchase of shares in Empresas Almacenes Paris SA, according to data compiled by Bloomberg. The company has an option to repurchase within two years a 39 percent stake in its Argentine supermarket unit from UBS AG.

    “While we expect to see short-term pressure on the stock on potential overhang risk, ultimately this will increase the company’s flexibility to continue expanding in the region, while improving its financial position,” Banchile-Citi analysts including Peter McMenamin wrote in an e-mailed note today.

    Cencosud is the third-biggest retailer in Latin America by sales after Wal-Mart de Mexico SAB and Brazil’s Cia Brasileira de Distribuicao Grupo Pao de Acucar, Bloomberg data show.

    To contact the reporter on this story: Eduardo Thomson in Santiago at ethomson1@bloomberg.net

    To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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