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Wesfarmers in $3bn raising to cut Coles debtFont Size: John Durie | January 22, 2009
Article from: The Australian

WESFARMERS will unveil a capital raising of about $3 billion as early as today.

It is part of a deal to reduce and renegotiate the debt it amassed after the $18 billion takeover of Coles in 2007.

The raising -- most likely a rights issue accompanied by news of new debt terms -- is expected to be priced just below $14 a share, a discount of more than 17 per cent to last night's price.

Yesterday's decision by the Australian Securities and Investments Commission to extend the ban on short selling financial stocks until March 6 will help protect Wesfarmers shares from attacks by hedge funds during the discounted capital raising.

Wesfarmers is counted as a financial stock for the purposes of the ban, which was imposed last year, because of its insurance operations.

Shares in the conglomerate, which also has coal and fertiliser businesses, have fallen from highs above $41 in February last year to just $16.83 yesterday. It struck an eight-year low of $15.32 in mid-December.

Details of the capital raising were being finalised last night. It is subject to approval from the company's board, which met in Perth yesterday.

An increase in the amount raised will be allowed, depending on demand from shareholders. It will be underwritten by seven or eight investment banks, some of whom have been trading Wesfarmers shares in recent sessions.

Analysts' notes supporting the deal have been circulated to help increase demand, with most saying anything above a $3 billion capital raising will take pressure off the company.

Wesfarmers has $2 billion in debt due to be repaid this year and $5 billion due in October next year. It has indicated that the banks behind the short-term debt are likely to support a rollover of the facilities at the right price.

Wesfarmers CEO Richard Goyder has discussed the cost of extending repayment dates with his bankers.

Wesfarmers, which raised $2.5 billion in a rights issue last May pitched at $29 a share, has been punished by the market as it attempts to turn around the Coles supermarket business.

Earlier this month, it flagged a cut in dividends and a $150million hit to its balance sheet from write-downs and provisions.

The charge, expected to be reduced to $140 million after tax, comprised write-downs in the value of property held by the Coles division and reductions in the valuation of investments held by half-owned investment bank Gresham Partners.

Also included was a provision for costs associated with the closure of a Kmart distribution centre and increased workers' compensation provisions resulting from lower interest rates.

Wesfarmers is now forecasting a profit of $850-$880 million after tax for the six months to December 31, after about $150 million in provisions and write-downs.

In a quarterly production report yesterday, Wesfarmers' coal arm said production at its Premier operation in Western Australia was 9.9 per cent lower in the December quarter on lower demand from state power company Verve Energy.

At its Curragh operation, metallurgical coal production decreased by 2.9 per cent compared to the prior quarter due to changes to the mining sequence and product mix. Steaming coal production decreased by 4.8 per cent in line with contractual requirements.

Wesfarmers said that at Bengalla, its share of coal production for the quarter was 560,000 tonnes, 7.9 per cent higher.