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Tesco may leave Asia with a full cart

Hong Kong

TESCO is heading to the checkout lane in South-east Asia at the right time.

Britain's biggest grocer says it is considering a sale of its businesses in Thailand and Malaysia. Thai peer Central Retail's rich 2020 listing, plus interest from local heavyweights like CP Group, make it a good time to exit before regional economies cool further.

If Tesco can reap a US$9 billion valuation, as a Wall Street Journal report suggests, incoming boss Ken Murphy will have reason to cheer.

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Despite a much-vaunted expanding middle class, Asia has repeatedly frustrated international supermarket giants. France's Carrefour and Casino have already retreated; US$30 billion Tesco left Japan in 2012 and South Korea in 2015. That left it with its South-east Asian assets, the vast majority in Thailand.

This sale is unlikely to be a repeat of Tesco's Korean exit, which ended with Asia's largest-ever leveraged buyout. Local idiosyncrasies mean deep-pocketed Thai tycoons are more likely buyers. Several have long coveted the Tesco business, not least Charoen Pokphand Group's Dhanin Chearavanont, who sold the assets to Tesco during the Asian financial crisis. Other suitors include Charoen Sirivadhanabhakdi's TCC Group, and duty-free retailer King Power.

A great chance

Competitors like Central's Big C chain and government welfare changes have been squeezing Tesco, but the Asian operation last year still boasted an operating margin roughly double the core British business.

In the first half of its financial year, it outgrew the home market too. Still, Asia generates under 10 per cent of total sales and requires hefty investment. Tesco can find better uses for its cash. The Thai economy is showing no signs of reviving, with private consumption lacklustre. Malaysia, too, is cooling. That's good reason to seize the opportunity of a rival listing on Thailand's inflated bourse, setting a price for Tesco too.

Central Retail, preparing to list next year, could raise some US$2 billion at a valuation of around 30 times earnings - more than twice where Tesco currently trades. The US$9 billion price tag is rich for a business that generated just under US$220 million in operating profit in its first half.

Still, margins have improved after a difficult 2018, and Thai tycoons have a track record of spending big. Tesco may be able to exit with a full cart. REUTERS