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Just a week before Walmart announced its plans for a stake inFlipkart, it agreed to cede control of its British business, Asda,to a competitor for $10 billion. The sale reflects CEO DougMcMillon's strategy to focus on high-potential markets, such asChina and India.The mega bond issue follows a $15 billion offeringfrom Bayer, which now becomes the year's third-largest bond sale.Both trail CVS Health Corp., which sold $40 billion of bonds inMarch to help fund its acquisition of Aetna Inc.|
Potential Downgrade
The Flipkart acquisition has drawn heavy skepticism from WallStreet, prompting several equity analysts to either cut their pricetarget for Walmart's stock or place it under review. S&P GlobalRatings said there's about a 33 percent chance it may downgradeWalmart's AA rating in the next two years due to the company's“aggressive global deal-making” as it tries to compete withAmazon.Leverage will rise to about 2 times EBITDA—earnings beforeinterest, tax, depreciation, and amortization—and debt will jump bymore than $10 billion. Before the Flipkart deal was announced,S&P had anticipated the company would pare its debt by $5billion. Walmart also plans to continue its current share buybackprogram, indicating a “potentially less conservative financialpolicy” going forward, S&P analyst Diya Iyer said in a May 9report.Moody's Investors Service, which rates both Walmart and itsnew bonds Aa2, an equivalent level to S&P's, has been morepositive, applauding Walmart's “historically flexible” financialpolicy.“We continue with our credit positive view that Flipkartrepresents a significant long-term opportunity for Walmart as itrecalibrates its international strategy to focus on growthmarkets,” Moody's analyst Charlie O'Shea said in a statementWednesday.Barclays Plc, Citigroup Inc., JPMorgan Chase & Co.,Bank of America Corp., HSBC Holdings Plc, and Wells Fargo & Co.are managing the bond sale, according to the filing.
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