Bloomberg News

Qatar Gets $19 Billion of Loans for Sainsbury Bid

September 20, 2007

Qatar lined up 9.6 billion pounds ($19 billion) of loans from three European banks to pay for its proposed takeover of J Sainsbury Plc (SBRY), the U.K.'s third-biggest supermarket chain.

ABN Amro Holding NV, Credit Suisse Group and Dresdner Kleinwort will provide the financing for Qatari government-backed Delta (Two) Ltd., according to a joint statement from Sainsbury and the fund.

Delta boosted the amount of equity in its 10.5 billion-pound bid to 4.85 billion pounds from 4.6 billion pounds first proposed. Sainsbury's board opposed the earlier bid because of concerns it would load the company with too much debt.

``It's unclear at this stage an LBO will be completed,'' CreditSights analyst Suzanne Cassidy said today at a conference in London. ``Modest operating margins do not provide much cushion against higher interest charges. It makes us doubtful the deal will get approval from stakeholders.''

Sainsbury's earnings before interest and taxes of 438 million pounds last year would leave it with an interest cover ratio of 0.9 times if the buyout goes ahead, Cassidy said. A ratio below 1 indicates the business is not generating enough revenue to meet interest expenses.

Increased Leverage

Standard & Poor's said today it may cut Sainsbury's credit rating of BBB-, the lowest investment grade. The ratings company cited the increased prospect of Delta's bid going ahead, which would leave the retailer with debt at 10 times its earnings.

The risk of owning Sainsbury debt surged after the statement. Credit-default swaps on the retailer rose 38 basis points to 200 basis points, according to Deutsche Bank AG. An increase in the contracts indicates deteriorating perceptions of credit quality.

Delta will use the bank loans partly to repay existing Sainsbury debt and to fund ``long-term financing for the Sainsbury group,'' according to the RNS statement.

Delta said the extra equity ``leads to a reduction in debt funding'' compared with its proposal in July.

The equity financing will increase by 850 million pounds through the sale of ordinary and preference shares, the statement said, without providing details of the breakdown.

According to the Times newspaper, the new deal comprises 3.2 billion pounds of ordinary shares, up from 3.1 billion pounds. The amount of preference shares will rise to 1.3 billion pounds from 500 million pounds, while the sale of so-called payment-in- kind notes is 400 million pounds, down from 1 billion pounds, the London-based newspaper said today.

Preference shares typically pay a fixed dividend, while PIK notes pay no interest until the mature and can be repaid with equity in the company.

The Qatar Investment Authority's Delta funds are used to manage the Gulf emirate's sovereign wealth. Delta made its bid for Sainsbury after a takeover attempt by London-based CVC Capital Partners Ltd. failed.

To contact the reporters on this story: Will McSheehy in Dubai, U.A.E. at; Cecile Gutscher in London at

To contact the editor responsible for this story: Gavin Serkin at

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