To capitalize on the U.S. debt market, Wal-Mart Stores Inc. (WMT) plans to issue $3 billion of senior unsecured notes in three-tranche, after issuing $2 billion of bonds in March 2010. These notes represent Wal-Mart’s biggest dollar-denominated bond transaction since April 2008, when the company sold $1 billion of 5-year notes and $2 billion of 30-year bonds.
The offering consists of $750 million of notes with a coupon rate of 2.25%, maturing on July 8, 2015, $1.5 billion of notes with a coupon rate of 3.60%, maturing on July 8, 2020, and the remaining $750 million of notes with a coupon rate of 4.87%, maturing on July 8, 2040. Barclays (BCS), Deutsche Bank (DB) and JP Morgan (JPM) are the investment banks managing the sale on behalf of Wal-Mart.
The 5-year debt is expected to yield 53 basis points (bps) more than similar-maturity Treasuries, the 10-year notes may yield 70 bps more than the benchmarks and 30-year bonds may pay a spread of 108 basis points.
Bentonville, Arkansas-based discounter will use the proceeds to buyback shares and fund general corporate requirement. Financial stability and high credit rating support Wal-Mart’s corporate bond issue in the midst of a sluggish economy.
Wal-Mart, the world’s largest retailer, announced a $15 billion share buyback program earlier in June 2010. Moreover, in March 2010, Wal-Mart had boosted its annual dividend by 11% to $1.21.
The company has benefited from its growth in Mexico, Canada and China, as sales declined at U.S. stores.
In a separate story, Wal-Mart’s efforts to expand in Chicago have become fruitful. After six-years of toil, Wal-Mart received approval from the city council to construct its second store of 145,000 square feet in the far South Side of Chicago, the third-largest city in the U.S. The second store will sell groceries and is expected to commence in the early 2012. The company got permission after it had agreed to pay starting wages of $8.75 an hour, together with a 40 to 60 cent hourly hike after the first year.
Wal-Mart’s expansion in the city has been a political battle because of labor opposition since the chain opened its first store in Chicago’s West Side in 2006. Wal-Mart will focus on generating jobs, sales and taxes, ensuring a healthy economic condition in Chicago.
In the longer-term, Wal-Mart is optimistic about constructing many more stores in Chicago and creating about 12,000 jobs in the city. Furthermore, the discounter has started exploring promising locations across the city to help Chicagoans save money. It also plans to move into other cities such as New York and Los Angeles.
Wal-Mart is poised for significant growth with a two-pronged strategy that will likely include pairing smaller-sized stores, similar to that of retail pharmacy outlets, and its traditional warehouse-sized supercenters, which can run up to 200,000 square feet.
Wal-Mart serves customers and members more than 200 million times per week at more than 8,400 retail units under 53 different banners in 15 countries.
Wal-Mart shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. Our long-term recommendation for the stock remains Neutral.
Read the full analyst report on “WMT”
Read the full analyst report on “BCS”
Read the full analyst report on “DB”
Read the full analyst report on “JPM”
Zacks Investment Research
