Tesco expands further into Asia with South Korea deal

Tesco, the UK's biggest supermarket chain, looked to the Far East for growth yesterday, buying another 12 stores in South Korea. The deal increases Tesco's foothold in the country by more than one-third, expanding its South Korean Homeplus estate to 44 stores.

Tesco, the UK's biggest supermarket chain, looked to the Far East for growth yesterday, buying another 12 stores in South Korea. The deal increases Tesco's foothold in the country by more than one-third, expanding its South Korean Homeplus estate to 44 stores.

Tesco is buying the stores, for an undisclosed sum, from Aram Mart, which operates in Pusan.

The UK group began building its international arm in 1995 to compensate for not being allowed to make any significant acquisitions in the UK, where it controls 29 per cent of the grocery market. A little less thanhalf its floor space is outside the UK.

South Korea and Thailand are the group's most important markets in Asia. It operates its stores in Korea via a joint venture with Samsung Corporation, a local conglomerate.

The deal comes as the rate of Tesco's international growth is slowing sharply. Its Christmas trading statement revealed that its sales across its 13 overseas markets grew by 16.1 per cent at constant currencies, down from 23 per cent five months ago.

Tesco made South Korean retailing history in 1999 when it became the first foreign partner in a retail joint venture in the country. Since then it has progressively expanded its control, most recently striking a deal to take its holding in Homeplus to 99 per cent over the next six years. The move, announced in October, will cost about £200m, and extends the original five-year agreement.

Tesco will pay between £40m and £60m, depending on how Homeplus performs, for an additional 5 per cent of the shares in 2007. It willpurchase a further 5 per cent by July 2011.

Tesco is lagging the growth ambitions it outlined when it acquired Homeplus - it had hoped to open 55 stores by 2005. A consumer credit squeeze knocked its progress, although the company told a group of investors who visited its Korean stores in October that like-for-like growth had resumed in the country.

Tesco, whose chief executive is Sir Terry Leahy, derives about £2.8bn of its total £30bn sales from its 179 stores in Japan, South Korea, Thailand, Taiwan and Malaysia. In July it took its first steps into China, by signing up to buy a share of 25 leasehold hypermarkets.