Tesco planning to make property flotation in Thailand

The supermarket group announced the initial public offering yesterday as speculation mounted it is about to launch a major campaign to boost its British operations, and news emerged it is slowing down its expansion into banking.

Tesco makes about two-thirds of its sales and profits in Britain, where shoppers are cutting back spending amid rising prices, subdued wage growth and Government austerity measures.

It has suffered more than rivals such as Sainsbury’s and Morrisons, mainly because it sells more discretionary non-food items including clothing and electricals.

However, unlike those competitors, Tesco has an international business which is enjoying particularly strong growth in Asia.

The group yesterday moved to highlight the value of that business, with plans to float a Thai property fund with an appraised value of some 14 billion Thai baht (£293m).

The fund will initially comprise 15 shopping malls anchored by a Tesco Lotus hypermarket.

Finance director Laurie McIlwee said the move was consistent with the group’s announcement in April it wanted a proportion of future property profits to come from overseas businesses. Tesco, third in annual sales behind France’s Carrefour and US industry leader Wal-Mart, will keep a one-third stake in the fund, continue to lease all 15 hypermarkets from it, and use proceeds to fund investment.

Retailers have been looking to extract more value from their property assets, which they believe are often under-appreciated by investors.

Tesco’s property assets are worth an estimated £36bn, compared with its market value of about £29.5bn. But some investors are reluctant to see chains losing too much control of their buildings.