What was once one of the biggest retail groups in Chile faces a potential credit downgrade after spending big on a push into e-commerce.
Falabella SA operates in seven countries and helped bring furniture store IKEA of Sweden AB to Latin America. But its attempt to compete with online giants Amazon.com Inc. and MercadoLibre Inc., which ramped up just as consumer spending in the region plunged, has marred its balance sheet.
The retailer’s notes are trading at spreads far above those of other BBB bonds and more in line with companies rated BB, according to data compiled by Bloomberg. This means the market is already incorporating a potential move to junk, and news of Gaston Bottazzini’s resignation as chief executive officer on Sept. 5 did little to reverse that trend.
Falabella’s balance sheet also ballooned as a result. Its ratio of debt to earnings before interest, taxes, depreciation and amortization jumped to 6.8 times in 2022 from 3.5 in 2018. “Judging by what is internalized in market prices, we believe that the company is trading more like a BB+ than a Chilean BBB-,” Benjamin Muñoz, a fixed income trader at asset manager Nevasa in Santiago, said by email.
Someone new will be in charge of those potential changes. Bottazzini is due to leave on Jan. 1 and his replacement hasn’t been announced. “We are working on monetization plans for other assets that we will communicate to the market during this year,” the company said Friday in an emailed statement.
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