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WES - WESFARMERS LIMITED


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market must reckon that with lower oil price <US$40 that consumers will have more money to spend at kmart 40% off clothing sale (but not underwear)

 

good opportunity to sell

 

Resources contributed 18% to EBIT for FY08 and coal prices dont look too good

 

problem remains the debt and further deterioration of the credit metrics

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$12 rights issue ?

 

Wesfarmers close to rights issue

Michael West

January 22, 2009

 

WESFARMERS is moving to raise new equity. Watch out for a deeply discounted rights issue in the order of $2 billion in the next few days.

 

The West Australian conglomerate, which made a successful $18 billion takeover bid for supermarket giant Coles in 2007, has $2.3 billion of debt to refinance this year and a further $5 billion next year.

 

It raised $2.5 billion last April at $29 a share but that was not enough. Although it considered a capital raising again late last year, it was deterred by large shareholders who needed to be convinced that the banks would do their bit on the debt-refinancing front.

 

According to one institution, there was not enough visibility on refinancing to warrant committing a large new lick of equity to the company. Wesfarmers has been working with its banks since to secure this commitment.

 

Speculation of a share issue and fears of refinancing risk have continued to weigh on the Wesfarmers' stock price, which closed yesterday at $16.83, and the company is believed to be close to announcing a rights issue at about $12 a share.

 

The thinking behind the issue is that if it is discounted enough then demand will meet the supply, and if shareholders take up their rights, the dilution factor will be eliminated. http://business.theage.com.au/business/wes...90121-7mt8.html

 

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In reply to: sabretoothed on Thursday 22/01/09 06:22am

WES has a a huge amount of debt relative to its market cap - last capital raising was at $29 ! - next one will be sub $15; and it is at the eye of the storm with consumer spending falling - the Coles, home improvement, Target, Kmart together contribute 62% to EBIT

 

I reckon they would be better off raising enough to get clear of the claws of the banks for 2 years

 

the banks are trying to corner good companies force them into administration and strip their assets and stash them away for ASX floats in the future

 

the banks have re-learnt the squirrel grip

 

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In reply to: db76 on Thursday 22/01/09 09:21am

I should have read the ASX anns

 

3 for 7 offer at $13.50

 

raise $2.8Bn

 

2 yr refinancing reduced fronm $6.4Bn to $1.6Bn

 

seems a good move to loosen the grip

 

will see what the market says !

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In reply to: db76 on Thursday 22/01/09 10:03am

lucky for WES also that

 

"The ban on short selling financial stocks put in place last year was due to expire next week but the Australian Securities and Investments Commission, citing the growing crisis among British and American banks, said last night it would retain the prohibition until March 6. "

 

as WES has an Insurance division

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In reply to: wolverine on Thursday 22/01/09 11:26am

I totally agree that they should cancel dividends at least for the next 12 months and review again then, but the realism is that it is really about appeasing the fund managers who hold large volumes in this company. For example some managed funds focus on companies that pay high dividends as well as companies that have high dividends combined with imputation credits. If WES was to cull dividends, this has the potential to significantly affect their relationship with some large institutions. If they were to do this, the stock could potentially be sold off heavily by the managers.

 

This is the problem, most rational people would rather see their dividends cut for 12 months or so and have a much stronger company in the coming years, but some are not interetsed in companies for their capital growth in the long term, they are just interested in Income distributions.

 

Management IMO would have been better off culling the dividends down to say 50 cents for the whole year. this would give ra grossed up return of 4.5-5% based on a share price of around $15. This would be more acceptable to everyone involved in my opinion.

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In reply to: AJ007 on Thursday 22/01/09 12:38pm

hi AJ

 

these must be the same fund managers that want catastrophic capital losses in return for the high yield.

 

which is why i say that they need to lead the company. if they can't vocalise the need to batten the hatches in order to get a lower rate of funding from banks then they need to have good hard look at their paycheques.

 

i run a business and last time i checked, if there isn't enough money coming i don't pay myself.

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In reply to: wolverine on Thursday 22/01/09 11:53am

Have I missed an amendment to ASX listing rules and Corporations Law? It seems that it is quite legal for listed companies to make an entitlement issue to a "select" group of shareholders and not to all shareholders on a pro-rata basis. WES just announced a heavily discounted 3 for 7 entitlement issue to "Institutions only". CSR also did the same thing late last year or that is what I assume happened as I never received an entitlement to their issue at $1.40 and I know numerous other individual shareholders who similarly never received any documentation.

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