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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