# Carrefour Case Write-Up Essay

718 Words Mar 18th, 2016 3 Pages
Carrefour S.A. Case Write-up In order to finance its ongoing expansion, Carrefour decided to issue EUR750 million 10-year bond through the eurobond market. Investment banks, like Morgan Stanley and UBS-Warburg had suggested that instead of issuing the bond with EUR, Carrefour could borrow British sterling pounds this time by taking the advantage of a temporary borrowing opportunity in the currency. Carrefour also faced three other alternatives of issuance: the bond could be issued at a coupon rate of 5.25% in euro, 3.625% in Swiss francs, or 5.5% in USD.
There are several considerations that Carrefour should take when it evaluated which currency it should issue the EUR debt. According to relative PPP equation,
%ΔS(foreign
Investment banks would recommend to issue a currency debt with the highest NPV and the lowest IRR, which means the debt has the lowest cost. In order to computing NPV and IRR, Carrefour assumed that the bonds are issued at par value, by using spot rates, Carrefour converted 750 million EUR into three currencies: GBP was 470.8 million, CHF was 1089.7 million, and USD was 735 million (Exhibit 2). The second step is calculate forward exchange rates of different currencies from year 1 to year 10. The forward exchange rates could be computed by implied forward rate formula below: F (f.c./EUR) = (1+i(f.c.))N/(1+i(EUR))N*S(f.c./EUR) forward exchange rates for the USD, GBP and CHF against the EUR for years 1 through 10 would be seen in Exhibit 1. After calculation of implied forward exchange rates, Carrefour could compute its cash flows of all payment in EURs for each currency bonds by applying projected forward exchange rates to each payment of different currencies. The final step would be calculating NPV and IRR based on Euros value that Carrefour got from former calculation. As it has shown in Exhibit 2, the eur debt has negative 8.95 million NPV, CHF is negative 9.36 million, and USD has a negative vale of 10.56 million. GBP is the only currency with 2.24 million gain in this

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