Wesfarmers Stung At Cash Register
The Age
Saturday April 5, 2008
WESFARMERS has paid a premium to refinance about 18% of the $4 billion in short-term debt that it must repay its lenders by October, paying a rate which is higher than any other Australian company in the past 18 months for a US bond issue.
The company yesterday raised $US650 million ($A710 million) in five-year notes at a higher rate than analysts had anticipated, only eclipsed by that paid by Fortescue Metals more than a year ago. It has also raised a smaller amount than analysts had expected, with the company believed to have dropped plans to issue 10-year notes because the rates on offer were exorbitant, amid the continuing squeeze on global credit markets. Company spokesman Keith Kessell refused to comment on the claims that it had baulked at the 10-year rates. Market watchers had also expected the company to raise a total of $1 billion, made up of $500 million in five-year notes and $500 million in 10-year notes. The five-year notes were priced to yield 4.25 percentage points more than US Treasury notes, a rate that is comparable to 2% above Australian cash rates. Iron ore miner Fortescue Metals paid 5.7 percentage points over US Treasury notes on 10-year junk bonds more than a year and a half ago. The Wesfarmers rate is also above the 350 basis points over the 10-year US Treasury rate that Boral, a company with an identical credit rating to Wesfarmers, paid in March. One analyst said Wesfarmers, which used the borrowed funds to buy the Coles Group last year, had taken "as much as it could" at the five-year term, but could not stomach the rate of the 10-year bonds. The spread of 4.25 percentage points was about "25 and 50 basis points above expectations", the analyst said. Only companies with a high investment grade credit rating can raise capital in the current market. At BBB+, Wesfarmers is at the lowest tier that is still able to raise funds. Wesfarmers still has $3.29 billion to refinance by October. The company is hoping to get new financing through local banks. This may be hampered by the fact that the three banks who lent the company the funds to buy Coles last year have been unable to syndicate about half of the $10 billion. The three banks involved in the exercise were ANZ, National Australia Bank and BNP Paribas. -- With BLOOMBERG
© 2008 The Age
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