Walmart Is Selling Bonds In The US To Buy A 77% Stake In Flipkart

As the Flipkart-Walmart deal shapes up with the companies seeking permissions from the Competition Commission of India (CCI) and ironing out taxation issues, the next focus for global retailer Walmart is to arrange funds to pay $16 Bn for its 77% stake in Flipkart.

According to reports, Walmart is selling bonds in the US to help finance its Flipkart stake.

The company’s filings have revealed that it is offering fixed- and floating-rate bonds in as many as nine parts. The longest part of the offering — a 30-year security — may yield around 1.2 percentage points above Treasuries.

Further, Barclays, Citigroup, JPMorgan Chase & Co, Bank of America, HSBC Holdings and Wells Fargo are managing the bond sale,according to the filings.

It is to be noted that before Walmart confirmed its investment in the Indian ecommerce giant, it agreed to cede control of its British business, Asda, to a competitor for $10 Bn.

This sale was seen as Walmart chief Doug McMillon’s strategy to focus on high-potential markets such as China and India.

Flipkart-Walmart Deal: Traversing The Critics

After SoftBank CEO Masayoshi Son inadvertently announced the Walmart-Flipkart deal on May 9, the deal has been on the receiving end of heavy criticism.

On the global front, Wall Street has been sceptical about the deal, prompting several equity analysts to either cut their price target for Walmart’s stock or to place it under review.

Further, in a May 9 report, S&P Global Ratings said there’s an about 33% chance it may downgrade Walmart’s AA rating in the next two years due to the company’s “aggressive global deal-making” as it tries to compete with Amazon.

Leverage will rise to about two times EBITDA and debt will jump by more than $10 Bn, compared to S&P’s expectation of a $5 billion reduction.

Walmart also plans to continue its current share buyback program, indicating a “potentially less conservative financial policy” going forward, S&P analyst Diya Iyer said in a 9 May report.

Among the Indian market, several traders and sellers bodies includingCAIT, AIOVA etc have raised their concerns against the deal, believing it to be cancerous to the industry and have sought the government to examine this deal.

As Walmart sources funds to complete the deal with Flipkart, it still has a long way to go before it can celebrate, with the CCI and income tax authorities yet to clear the deal and Indian trade bodies protesting against the deal.