Christine Joy Descalzo

Judy Ann Salucop

Yla Jolina Q. Sinacsi
Executive Summary
This report provides an analysis of whether Carrefour consider borrowing in British pounds
sterling or not as suggested by its investment banks, Morgan Stanley and UBS-Warburg, to take
advantage of a borrowing opportunity in the said currency. By calculating future cash flows (coupon
payments) and converting them to euros, the analysts were able to determine which would result to
the cheapest cost. The calculation of cash flows in total resulted to 10-year Carrefour Bonds in
British pound sterling being the cheapest cost to borrow from with a value of EUR1,132077,135.93.
Thus, the management should consider borrowing and should issue a 10-year Carrefour bonds in
British pounds sterling.
What the case is all about?
Carrefour S.A. was Europes largest retailer which altered the world of retailing with the
introduction of the hypermarket concept in the small French town of Sainte-Genevive-des-Bois,
in 1963. This format combined a supermarket, drugstore, discount store, and gas station into one
massive, one-stop-shopping megastore. In 2001, the company generated operating profits of
EUR2.8 billion on total net sales of EUR69.5 billion. The company expected to maintain its
expansion trajectory and increase sales by 5% on constant exchange rates and increase recurring
net income by 10-15%.
In 2001, total Carrefour borrowings were EUR13.5 billion, of which EUR6.4 billion were in
publicly traded bonds. With a debt-financing requirement of EUR750 million, this bond issue would
be one of Carrefours largest. Now in August 2002, the investment bankers expected that the 10year Carrefour bonds would be priced at a coupon rate of 5.25% in euros, 5.375% in British
pounds, 3.625% in Swiss francs, or 5.5% in U.S. dollars.
Foreign-currency exposure on imported goods was generally hedged through currencyforward contracts. Carrefours debt was denominated in many currencies. Foreign-currency
borrowing was generally hedged so that total debt requirements were currently 97% in euros. Since
the euro had depreciated over the past five years, the management considered the bonddenomination decision of the company. Thus, paying down foreign-currency debt with eurodenominated cash flow would become increasingly expensive if this trend continue.
What the case wants me to do?
*INSERT COMPUTATIONS*

Which currency to borrow from?

Based on the computation above, issuing a 10-year Carrefour bond in euros, in British
pounds, in Swiss francs, and in U.S. dollars would result to cash flows of EUR1,143,750,000.00,

GBP723,870,056.50, CHF1,485,283,430.23, and USD1,139,705,882.00 respectively. The cash

flows in British pounds, in Swiss francs, and in U.S. dollars are converted to euros for comparison
and which resulted to EUR1,132,077,135.93, EUR1,150,903599.81, and EUR1,132,646,685.50
respectively. With cash flows coming from bonds in British pounds being the cheapest cost to
borrow from, Carrefour Management should issue a 10-year Carrefour bond in British pounds
sterling as suggested by its investment banks, Morgan Stanley and UBS-Warburg, to take
advantage of a borrowing opportunity in the said currency.