Wesfarmers looks at ways to reduce debt

MMR, Oct 20, 2008

SYDNEY -- Wesfarmers Ltd. is assessing a variety of measures to cut a $3 billion (Australian) debt if it is unable to refinance funds it borrowed to acquire the Coles Group last year.

Chief financial officer Gene Tilbrook said at a presentation for investors and analysts that he was reviewing equity-style cash-raising moves, along with asset sales, as alternatives to being stuck with higher interest repayments on refinanced debt. Wesfarmers' market capitalization is almost 20% less than the $18 billion that it paid for Coles.

Tilbrook said the company has a gradually accelerating timetable to repay the debt, with the initial $1.3 billion due in less than a year, another $1.65 billion due by the end of 2009 and $579 million more due within the next two years.

Worries over the company's finances have been heightened by the global credit crisis along with a drop in its share price and concerns over a sharp fall in coal prices and increased investment by Wesfarmers in supermarket remodelings.

The head of the Coles retail business, Ian McLeod, again asked investors for patience, saying a turnaround would take up to five years. Coles has lost market share to Woolworths for three straight years.

McLeod, who took the helm of Coles in March, plans to cut 1,000 administrative jobs, focus on fresh groceries and pilot new formats.

Same-store sales of food and liquor rose just 1.3% in the first quarter, down from 2.4% in the fourth quarter. Woolworths posted 4.9% growth in its fourth quarter.