In Russia, a sagging economy is driving increasingly value-conscious consumers to the country’s largest hypermarket, prompting it to float more shares and use the $275 million in proceeds to add stores.
Lenta Ltd. said it raised $150 million via a stock sale. Earlier this year, it drummed up $250 million in a similar offering.
The retailer is now on track to open 40 units in 2016, which is above its prior target of 32 stores. Over the past year it cut the ribbon at 45 hypermarkets. Currently, the chain has 122 hypermarkets and 27 supermarkets across the country.
The European Bank for Reconstruction and Development said it reduced its stake in the retailer to 7.4 percent from 11.5 percent by selling $125 million worth of shares. The EBRD said the transaction was “part of a coordinated transaction with [Lenta] aimed at increasing its free float and attracting new classes of investors.”
Alain Pilloux, EBRD’s managing director for industry, commerce and agribusiness, said the offering “demonstrates the continued interest in Lenta on the part of both the international and domestic investor community, based on the company’s proven ability to deliver outstanding performance even in challenging economic conditions.”
In its most recent quarterly report, the retailer said same-store sales rose 8.5 percent as total sales gained 29.3 percent to 62.8 billion rubles, or $1 billion. Annual sales in 2014 alone tallied 194 billion rubles, or $3.1 billion. Lenta sells food and non-food items including apparel, accessories, giftware and a variety of beauty products.
The free float of shares is now well over 50 percent of total shares. But TPG Capital remains Lenta’s largest single shareholder with a 35.6 percent stake. EBRD’s Pilloux said the bank “continues to be strongly committed to Lenta and is comfortable with its remaining stake in the company following [the] partial sale, which was part of a normal portfolio-management operation. The bank looks forward to its continued involvement in the company’s board of directors.”
Last week, speaking about Lenta’s quarterly results, chief executive officer Jan Dunning said in a statement that “Lenta remains well-positioned to win in a tough market environment” as it delivered strong same-store sales “despite continuing pressure on consumer incomes and decelerating food inflation.”
Earlier this month, Moody’s Investors Service upgraded Lenta’s debt rating to “Ba3” from “B1” and pegged it with a “stable” outlook rating. The ratings firm said the upgrade was due to Lenta’s “proven ability to maintain a robust financial profile and conservative financial policy while still pursuing a bold growth strategy.” Moody’s also said the retailer’s “price-led” business strategy was key.
Lenta’s growth comes at a time when the Russian economy struggles. On Monday, the government there said the gross domestic product contracted 4.3 percent for September. And retail sales fell 10.4 percent in the month, the sharpest drop since 2000. Real household income in Russia dropped 9.7 percent in September, which followed a 9.8 percent decline in August, according to government data.
Economists and analysts have said Russia’s economic woes are directly tied to the impact of sanctions against the country for intervening in the Ukraine. Record-low oil prices have also contributed to the weakness since Russia is a major supplier of petroleum to Europe.
But Russia is not alone in its problems. IHS Global Insight chief economist Nariman Behravesh and senior research director Sara Johnson said in a recent research note that the global economy is expanding, but remains in a “low gear.”
“There is an increasing risk that the global economy in 2016 will be unable to break out of the 2.5 percent to 3 percent growth range in which it has been stuck since 2011,” they noted. “A tepid pickup in expansions in the developed world may not be enough to offset the bleak outlooks in the emerging world.”
The firm is forecasting 3 percent global real GDP growth for 2016. “Downward revisions to the forecasts for Brazil, Canada, Japan, Russia and the United Kingdom are offset by an upward revision to U.S. growth,” the economists said. “We expect some of the demand-side constraints on growth — deleveraging and austerity, weak trade growth and the slowdown in China — to ease in the coming year. Yet, the longer-term deceleration in the global economy will not reverse without aggressive policy actions to alleviate supply constraints.”