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Carrefour S.A. Case Presentation

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by

Hayden Fox

on 26 November 2013

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Transcript of Carrefour S.A. Case Presentation

Inflation Trends
Carrefour S.A.

Financial Issues
How should Carrefour meet their debt requirement?

Continue with current financial policy
Borrow in British pounds sterling through the eurobond market
Current Financial Policy
Recommendations
Hedge 100 percent in the British Pound Eurobond Market
Decreasing interest rates along with positive trends in the Pounds forward rate provide an opportunity for a lower cost of borrowing through the British Pound Eurobonds
Global Locations
• Originated in a small French town in 1963
• Europe's largest retailer in the summer of 2002
• Expected expansion trajectory of 5% increase in sales and 10-15% increase in recurring net income
• Total of 5,233 stores in 2001

• In 2002 the company maintained retail operations in 26 countries across the globe

The Stores
• Unique retail format combining a supermarket, drugstore, discount store, and gas station

"One-stop-shopping megastore"
format allowed for rapid expansion throughout France and beyond

Eurobond
: bond issued in a currency different from that of the issuing country
• Bond Denomination
• Eurobond Market
• Inflation
Debt-Financing
• Carrefour needs to borrow 750 million euros
• Management needs to decide which currency the company should be borrowed
• How much should be hedged in the forward market

Forward Rates
Multi-Domestic Financing
• Carrefour operates with high financial leverage
• 8 billion in equity and total borrowings of 13.5 billion
• We will borrow the 750 million euros using corporate bonds through the Eurobond market
The Case Study
• Total Sales were € 53.9 billion in 2002, from over 5,200 stores
• Funding needed from large acquisitions
• Proposed: 10-yr bond for debt-financing of € 750 million
• Bond priced at par, with coupon of 5.25% in Euros, 5.38% in pounds, 5.5% in U.S. dollars, and 3.63% in Swiss Francs

• Company growth financed through foreign securities
• 90 percent of their borrowings are in the euro
• Foreign currency exposure generally hedged through Forward Contracts

• Foreign Currency Spot Rates
• Cross Exchange Rate
• Exchange Rate Environment
• Government Benchmark Yield

About Carrefour
Expansion & Profit
• Operating profits of
€ 2.8 billion in 2002

• Total net sales of € 69.5 billion
• Highly disciplined with managing exchange rate risk
• Carrefour operates primarily within the local economy for sourcing its products
• Any foreign-currency exposure on imported goods was hedged through
forward contracts
on the currency

Forward Contracts
Covered Interest Rate Parity vs. Arbitrage

Covered Interest Rate Parity
is a condition where the relationship between interest rates and the spot and forward currency values of two countries are in equilibrium



Arbitrage
involves switching from a domestic currency that carries a lower interest rate to a foreign currency that offers a higher rate of interest
on deposits.
Example
: Purchase Forward rate = $2.00/Euro
Scenario 1
Rate = $3.00/Euro
Scenario 2
Rate = $1.00/Euro
GAIN!
LOSS!
The
Forward market
involves contracting today for the future purchase or sale of foreign exchange to hedge against
Exhange Rate Risk
"
Obligation"
of the contract holder
Presented by:
Breanna Barnes
Hayden Fox
Mike Godwin
Billy Maher
Lian Moss
Case 37
Eurobonds
Full transcript