Chilean retailer Falabella aims to close several major asset sales

The retailer announced this month that it reached an agreement to sell it its stake in mall owner Falabella Peru to Plaza SA. — Bloomberg

SANTIAGO: Falabella SA, Chile’s second-largest retail group by sales, expects to close several more “major” asset sales this year as part of its plan to raise US$850mil to US$1bil and help improve its credit metrics, says chief executive officer Alejandro Gonzalez.

The retailer announced this month that it reached an agreement to sell it its stake in mall owner Falabella Peru to Plaza SA, a separate company controlled by Falabella. Plaza, more commonly known as Mallplaza, agreed to raise as much as US$300mil via the sale of new shares to buy the stake.

“The Plaza deal is the first concrete sale, and there have been some minor asset sales but we are working with banks.

"We should complete several major transactions this year,” Gonzalez told reporters in Santiago after the company’s annual shareholder meeting. He didn’t provide details on what assets were for sale.

The asset sales combined with cost cuts and a recovery in revenue and profitability indicators should allow Falabella to improve its credit metrics.

“The investment grade will be a result of returning to our historical results and that is what we are working on,” Gonzalez said.

Earlier in the annual shareholder meeting, chairman Enrique Ostale said in prepared remarks that the company is working to return to investment grade as soon as possible, and that the company has comfortable solvency and cash positions.

Gonzalez said credit rating companies have told the company to aim for a ratio of net debt to earnings before interest, taxes, depreciation, and amortisation of about four times.

“We’re confident that we will be able to close the year close to that,” he said, adding that the ratio is currently near 6.5 times after peaking at 8.6.

The retailer operates department stores, home-improvement shops and supermarkets in seven Latin American countries.

In recent years, heavy investments to expand its online operations and compete with giants such as Amazon.com Inc and MercadoLibre Inc failed to deliver positive results.

This, added with a general economic slowdown in the region, hurt its balance sheet and led to a loss last year of its investment grade rating.

Fallabella’s bonds tumbled in November after both Fitch Ratings and S&P Global Ratings downgraded the retailer’s credit score to junk, citing a deterioration in Falabella’s leverage metrics and risks in its debt reduction plan.

Then-CEO Gaston Bottazzinni – who spearheaded the growth into eCommerce, through deals such as the acquisition of Mexican marketplace Linio in 2018 –resigned and was replaced in January by Gonzalez.

Falabella might be regaining investors’ trust on its prospects. The retailer’s shares have gained 40% since the end of October, and its fourth-quarter earnings beat estimates. In the first quarter of the year, Falabella’s dollar bonds due in 2032 returned a positive 6.9%, one of the best among all Chilean corporate dollar bond issuers, according to data compiled by Bloomberg. — Bloomberg