Source: IOL

The ongoing negotiations between Pick n Pay and Zimbabwe's TM Supermarkets was logical as the group was making good on its promise to redeploy capital into southern and South African operations, experts said at the weekend.

TM Supermarkets secretary Andrew Lane Mitchell said last week negotiations between the groups were under way.

"The talks involve a debt-for-equity arrangement" to raise money to recapitalise the grocery chain, he said.

It is believed the company may increase its stake in TM Supermarkets to 49 percent from 25 percent as the country's economy rebounds from a decade-long recession.

Pick n Pay spokeswoman Tamra Veley said the company was in a closed period. "We have always indicated interest in increasing our stake in TM Supermarkets should the opportunity present itself. However, no final agreement has been reached yet," she said.

TM Supermarkets, majority owned by Meikles Africa, is Zimbabwe's biggest supermarket retailer with 50 outlets across the country.

Syd Vianello, an equity analyst from Nedcor Securities, said it was part of Pick n Pay's strategy to expand its business in Africa. It opened its first store in Zambia recently and had signed with franchise partners in Mozambique.

"We have identified sites for expansion into Mauritius and have plans for expansion into Angola," chief executive Nick Badminton said earlier this year. It has 17 stores in Namibia, 12 in Botswana, seven in Swaziland and one in Lesotho.

Earlier this year, the retailer sold its Australian operation, Franklins, to Australian-based Metcash for A$215 million (R1.4 billion) following criticism from the investment community that the operation was not an effective use of capital.

The company's financial director Dennis Cope confirmed at the time that the group might redeploy the capital into South African and southern African operations.

"We are entering Mozambique and Zambia and looking at Angola and other African countries," he said.

Vianello said the increased TM Supermarkets stake made sense as Pick n Pay already had a stake in the business.

"TM Supermarkets requires a lot of capital. I think Pick n Pay will put money into the business and TM will use it to pay off debt," he said, adding that Pick n Pay's potential increased stake could be a sign that the group was hoping for the Zimbabwean economy to recover soon.

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