Wesfarmers' Issue Is $10bn Borrowed Funds
The Age
Friday April 18, 2008
COLES' new owner, Wesfarmers, is expected to tap shareholders on the shoulder for more cash to help repay the money it borrowed to finance the deal.
Wesfarmers, which yesterday entered a trading halt, said it was looking at launching a rights issue to raise about $2 billion, offering shareholders a discount of up to 20% off the current share price. However, the issue would also mean a dilution of their holdings. The Perth-based industrial conglomerate was worth $16 billion when it bought Coles for $19 billion in shares and cash in November last year. It was one of the last multibillion-dollar deals to be completed before the full onset of the subprime market meltdown. The sharemarket slide has reduced the combined value of the company to just $20.15 billion. Debt market concerns have also caused havoc with the syndication of the $10 billion that Wesfarmers borrowed from local and international banks to buy Coles. The proceeds of the rights issue, which is expected to be priced at about $29.60 (based on the last closing price of $36.97) will be used to reduce the $3.3 billion in short-term loans that it must refinance by October. "If Wesfarmers were to choose to pursue an equity raising . . . it would strongly favour an outcome that would give all eligible existing shareholders the opportunity to participate," the company said in an announcement. The balance of the $3.3 billion in loans is expected to be repaid from a euro bond issue later this year. The company is favouring a rights issue as debt markets have been considered too expensive. It was stung with a high interest rate when it refinanced $710 million in debt on the US bond market earlier this month, and does not want to be stuck paying tens of millions of dollars in extra funding costs. Only companies with a high investment-grade credit rating can raise capital in the current market. At BBB+, Wesfarmers is at the lowest tier still able to raise funds. The Wesfarmers board is expected to approve the rights issue either today or on Monday. The issue is expected to be underwritten by UBS, Goldman Sachs JBWere, ABN Amro and Macquarie Group.The $3.3 billion is the short-term component of the $10 billion Wesfarmers borrowed to buy Coles Group.Chief financial officer Gene Tilbrook has previously said he has plenty of time to refinance and wants to wait for markets to calm down.Wesfarmers plans to improve Coles' sales performance and close the gap between it and industry leader Woolworths.On Wednesday, rival retailer Michael Luscombe boasted that Woolworths had clawed further market share away from Coles' supermarkets, and was progressing with refurbishment plans aimed at stymying his rival's growth.The trading halt is expected to be lifted on Monday.KEY POINTS ? Wesfarmers is looking at launching a rights issue to raise about $2 billion.? The proceeds will be used to reduce $3.3 billion in short-term loans that must be refinanced by October. OPINION? Malcolm Maiden BACK PAGE
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