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$50M Wal-Mart Loan for Bangladesh

Zacks Equity Research

According to Reuters, retail giant Wal-Mart Stores Inc. (WMT) has planned to lend up to $50 million to Bangladesh factory owners, in a push for safer and improved plant facilities in the country.

The loan is part of a combined amount of more than $100 million that a group of 20 North American retailers, including Walmart, Gap Inc (GPS), Costco Wholesale Corp (COST) and Target Corp. (TGT), pledged in a pact announced in July.

However, approval from the central bank of Bangladesh to allow any foreign currency loan is still pending. The interest rates on loans are also yet to be finalized.

Apart from the alliance formed by the North American companies, a European-led group comprising a larger number of retailers and union groups is also keen on providing fund for factory safety improvements in the Asian country. Two of its European clothing retailer-members have pledged at least $60 million over five years to monitor safety and ensure sufficient capital for repairs in Bangladesh plants.

These initiatives follow the collapse of the eight-story garment factory complex in Bangladesh last April killing 1,129 workers, and a fire in a factory in Nov 2012 which affected another 112 people. Labor and consumer groups have been pressurizing Walmart to take steps to ensure factory safety in Bangladesh. While Walmart was not in favor of joining a broad factory safety plan, it said it would pursue its own plan and would conduct inspections of its 280 factories in the country.

Walmart has always remained under the glaring eye of the media owing to its size and scale of operations. Walmart is currently facing bribery allegations and lobbying charges for its operations in Mexico, China, India and Brazil. The company has already spent $73 million on expenses associated with the Mexico bribery scandal. Such bribery allegations severely hurt investor confidence.

Walmart is also accused of violating India’s guidelines and Foreign Exchange Management Act regulations, in relation to the company’s plan to set up a store in India. The company, however, has denied all accusations. While these issues are unlikely to impact company financials in the long run, it might serve as an overhang for the stock in the short run.

Other than this, the challenging retail environment is also hurting the economic bellwether Walmart, which reported weak fiscal second-quarter 2014 results on Aug 15. This was on top of sluggish results announced in the first quarter. The world’s largest retail giant sharply lowered its sales and earnings guidance for the fiscal year.

The company expects the gloomy consumer spending environment to continue globally for some more time. The economic strains in the U.S. and abroad are likely to pressurize its low-income shoppers for the rest of the year.

Walmart currently carries a Zacks Rank #3 (Hold).

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