Central to pause buying spree in Vietnam, focus on profits

The giant retailer from Thailand has spent much capital in Vietnam by setting up Robins Department Stores, expanding its Power Buy electronic appliances through local partner Nguyen Kim, and recently the group acquired fashion-focused e-commerce site Zalora, plus undertook a US$1.13-billion takeover of Big C Supercentre in Vietnam.
Prin Chirathivat, deputy group chief executive officer, said that a Thai bank had advanced a bridging loan of more than Bt10 billion to support the acquisition of Big C in Vietnam.
The group would convert the loan to a long-term loan to restructure its financial burden, Prin said.
Vietnam was now shaping up as a second home for Central, he said.
The growing Vietnamese economy has been supported by the huge purchasing power of its people and there were several businesses there Central could buy, unlike Indonesia, another investment destination of the Central Group, he said.
“In Indonesia, we don’t have opportunity to acquire retail businesses because there are no sellers unlike in Vietnam. Our expansion in Indonesia is slower than in Vietnam,” he added.
Central Group had many businesses that had yet to penetrate the country such as food, property development and hotel businesses.
Meanwhile, it will use Zalora to strengthen the channels of its local partner Nguyen Kim and Central Marketing Group (CMG)’s unit in Robins.
Asked about the possibility of opening a Central Department Store in Vietnam to cash in on the growth of middle income Vietnamese, Prin said while that could happen, it was not likely anytime soon.
The decision to ease its buying spree in Vietnam came because the group considered it time to reap profit from its businesses there, saying that despite the positive cash flow, the depreciation of fixed assets was enough to pressure profitability.
He said the group would bring the best practices and strengths of the group in Thailand to Big C in Vietnam.
In Thailand, Central Group recently disposed of its entire stake in Big C Supercentre after Berli Jucker, a business unit of the TCC Group, became the major shareholder.
“We initially did not have the plan to unload shares in Big C Thailand but after winning the bidding for Big C in Vietnam we realised we should have enough cash to support the business expansion here,” he explained.
Central realised Bt50 billion from the sale of its shares in Big C Thailand, however, it did not use the funds for the Big C deal in Vietnam because the group had already signed the bridging loan for more than Bt10 billion with a Thai bank, he said.
Prin said that while Central may slow down buying up businesses in Vietnam, it had not closed the window on inorganic growth because the latter offers a quicker pace of growth than the organic way. Starting from zero, the group has spent much more time dealing with many parties including construction developers and suppliers.
Central has only one department store in Jakarta, since 2014, but under the group’s plan, it would like to have five more stores in Jakarta and Surabaya by 2017.
The group plans to add a second Central Department Store in Jakarta in the third quarter of this year.