CENCOSUD Announces a Binding Agreement with ITAU UNIBANCO HOLDING S.A. for the Joint Development of the Financial Retail Business in Chile and Argentina

SANTIAGO, Chile, June 17, 2013 /PRNewswire/ -- Cencosud (NYSE: CNCO, BCS: CENCOSUD) a leading South American retailer with operations in Chile, Argentina, Brazil, Peru and Colombia, today announced it has signed a binding MOU with Itau Unibanco Holding S.A. (Itau) to jointly develop the financial retail business in Chile and Argentina.

Under the terms of the agreement, Itau Chile will acquire 51% of the shares of Cencosud Administradora de Tarjetas (CAT), Cencosud's credit card operator in Chile. In Argentina, Cencosud will create a new entity, in which Itau Argentina will contribute with equity, to jointly develop the business.

Additionally, in both countries Itau will provide funding to finance 100% of the current credit portfolio and future growth.

Business Partnership Structure

The agreement signed today includes all the conditions for the establishment of the new partnership. During the next 90 days, the parties will work to translate these terms into the respective contracts. The final contracts are subject to approval from the regulators both in Chile, Brazil and Argentina.

This partnership is aligned with the long-term strategic plan of Cencosud, which aims to enhance the financial services and value proposal offered to Cencosud's clients without the need to devote internal resources, replicating the successful business model currently operating in Brazil and Colombia.

The agreement permits Cencosud to add the know-how and risk management from Itau, the largest bank in Latin-America, allowing our customers to maintain their current benefits along with a wider offering of financial products, higher service quality and deeper access to credit.

The Transaction in Figures

Cencosud will receive a total up-front cash payment of approximately USD$ 1,580 million, of which USD$ 280 million will be from the sale of 51% share of CAT and USD$ 1,300 million in the form of payment of the credit card portfolio funding[1]. 

• The term of the agreement is 15 years
• Chile
  • Purchase of 51% of the shares of CAT by Itau Chile for approximately USD$ 280 million.
  • After 15 years, an incremental purchase price adjustment will be calculated upon achievement of business targets.
• Argentina
  • Cencosud will create a new entity with approximately USD$7 million in equity
  • Itau Argentina will contribute with approximately USD$ 27 million in the form of capital increase, ending with a 51% ownership
  • After 5 years a purchase price adjustment will be calculated upon business targets.
• In addition, Itau will fund 100% of the portfolio in both countries for around USD$ 1,300 million, currently funded by Cencosud.

Benefits of the Transactions

• Initial cash inflow of approximately USD$ 1,580 million that will be used to strength Cencosud's balance sheet; of which approximately USD$400 million will be used to reduce Banco Paris liabilities.  We expect that with the transaction the Company will reach stronger financial ratios in line with Cencosud's commitment to investment grade.
• The following pro-forma figures show a simulated scenario in which the transaction would be executed today and the use of proceeds would be used to reduce debt. 
  • 100% reduction of Argentina´s financial debt of approximately USD 180 million, with the funds received locally for the portfolio currently funded by Cencosud
  • Approximately USD 400 million to pay down Banco Paris debt
  • Approximately USD 1,000 to reduce other Cencosud's liabilities

Pro-forma Amortization Schedule

• The proforma duration would increase from 5.98 years to 6.9 years
• The financial costs of Cencosud would be reduced versus the previous years
• Leverage of the Company would decrease from 3.7x at March 2013 to 2.7x (proforma as of June 30, 2013).

The Financial Retail Service in Chile and Argentina

Covenants

Cencosud has 6 bank loans and 11 series of local bonds with CAT change of ownership clauses. After signature of the final agreement the Company will summon bondholder meetings and will discuss with banks to resolve this situation.

Proforma Guidance

The Company does not expect that 2013 figures will materially change versus the guidance provided by Cencosud in February 2013 because of this transaction.

All the figures mentioned above are based upon current portfolio.  Final figures will be determined on the portfolio at the date of closing (after the approvals from the regulatory entities in Chile, Argentina and Brazil).

About Cencosud

Cencosud is a leading multi-brand retailer in South America, headquartered in Chile and with operations in Chile, Brazil, Argentina, Peru and Colombia. The company operates in supermarkets, home improvement stores, shopping centers and department stores, always aiming to deliver the right product at the right price to Latin America's growing middle class. In 2012, the Company listed American Depositary Receipts (ADRs) on the New York Stock Exchange.

Investor Relations
Marisol Fernandez Leon                         Natalia Nacif    
IR Manager                                           IR Analyst
Phone +562 2959 0545                          + 562 2959 0368

Email [email protected]
Website www.cencosud.com

[1] All the figures mentioned above are based upon current portfolio.  Final figures will be determined on the portfolio at the date of closing (after the approvals from the regulatory entities in Chile, Argentina and Brazil).

SOURCE Cencosud