Wesfarmers Still Confident As Concerns Raised Over $4bn Refinancing
The Age
Wednesday March 19, 2008
THE continuing squeeze on global credit markets has again raised concerns about the highly leveraged Wesfarmers' ability to refinance almost $4 billion in debt by October. The company yesterday refused to deny rumours it baulked when asked to stump up interest at 4 percentage points above the cash rate.
Company heads, who early this month were in the US and Europe on a roadshow visiting equity and debt investors, yesterday denied that Wesfarmers had lined up a deal but withdrawn at the last minute when faced with the massive increase in the interest rate on the debt.Market sources said the company might have to pay a funding margin up to 4 percentage points above the prevailing cash rate, double the 2 percentage points it had expected. At its half-year result in February, the company said it was confident of refinancing the bridging loan at spreads between 1% and 2% above what it is now paying, even in the challenging credit market conditions.Asian financial wire IFR Asia quoted a banker close to the deal saying: "Their backs are to the wall - they are going to have to suck it up and pay up." If it is forced to pay the higher rate, the increased interest expense could add an extra $280 million a year to Wesfarmers' funding costs.But it may be able to reduce this by borrowing only $2.5 billion, making up the shortfall by using its dividend reinvestment plan and surplus cash generated by its coal business, which is generating more cash as a result of record coal prices.Chief financial officer Gene Tilbrook has previously said he wants to wait for markets to calm before he refinances the debt, but he has been waiting for three months and there is no sign of a settling of nerves.Company spokesman Keith Kessell yesterday declined to comment on claims that it had been asked to pay 4 percentage points above cash."We arranged a series of investor meetings in the US from March 3 to gauge feedback from that market as part of an overall strategy to look at all options for the purposes of refinancing the 12-month bridge facility," Mr Kessell said."We have previously said that we would be looking at all available options and we would be monitoring markets."(Chief executive) Richard Goyder said at the half-year result that it's not a question of if but when and how we refinance that debt. We have adequate time (to refinance) and an excellent relationship with our banks . . . and we have no concerns about being able to achieve that within the time frame."The company is expected to raise the finance in the US rather than Europe.Shares in the company closed 42? lower at $35.34.
© 2008 The Age
