22/01/2009 - 15:19

Wesfarmers cuts dividend in $3bn raising

22/01/2009 - 15:19

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Conglomerate Wesfarmers says it expects a lower dividend for the third consecutive year as it launches a heavily discounted rights issue to raise nearly $3 billion to help pay down debt from its $20 billion Coles acquisition.

Wesfarmers cuts dividend in $3bn raising

Conglomerate Wesfarmers says it expects a lower dividend for the third consecutive year as it launches a heavily discounted rights issue to raise nearly $3 billion to help pay down debt from its $20 billion Coles acquisition.

Managing director Richard Goyder said recent talks with the company's bankers, ratings agencies and investors over debt refinancing had prompted a dividend policy change.

The expected dividend for fiscal 2009 is expected to comprise a final dividend of no more than $1.00 a share, fully franked, and an interim dividend of no more than 50 cents, fully franked.

The 2009 interim divided will be down from 65 cents per share for the first half of 2008.

However, further cuts to the dividend were "highly unlikely," Mr Goyder said.

"We've got a significant retail shareholder base and are cognisant of their desire for us to pay dividends," he said.

Dividends will now be paid based on cash flow, capital expenditure requirements, retained earnings, franking credits, debt levels, and business conditions, rather than the previous policy of paying the franking credits to shareholders.

Mr Goyder was speaking after Wesfarmers unveiled a rights issue to raise at least $2.8 billion to repay debt as it continues its five-year revamp of retail giant Coles Group, which it acquired in late 2007.

"It emphatically deals with the refinancing issues and puts the debt issue behind us," Mr Goyder said.

Wesfarmers is offering a three for seven accelerated pro-rata non-renounceable entitlement at $13.50 per share to help reduce total debt from $9.7 billion to $6.9 billion.

The entitlement's share price represents a 19.7 per cent discount on Wednesday's closing share price of $16.83 - which was where the stock last traded before entering into a trading halt on Thursday.

The institutional component of this entitlement offer has been fully underwritten to raise $1.9 billion.

The remaining $900 million will be raised via a $500 million placement to mutual funds managed by Capital Research Global Investors and a $400 million placement to mutual funds managed by Colonial First State.

The two fund placements will be made at $14.25 per share.

Wesfarmers snapped up Coles Group in November 2007 for $18.2 billion after global credit markets began to freeze, with plans to turn the ailing retailer around in five years by spending between $1 billion and $1.2 billion a year on revamping operations.

Mr Goyder said expectations of capital expenditure levels on Coles had not changed.

As well, the capital raising means asset sales are off the agenda and Wesfarmers has no need to seek more credit through the government's partnership with local banks.

"Today puts all of that behind us," Mr Goyder said.

The capital raising announcement prompted global ratings agency Standard & Poor's to affirm Wesfarmers' BBB+ rating and remove its negative outlook for the company.

Wesfarmers' shares are due to emerge from their trading halt on January 27 after the capital raising is completed.

The company will report its interim result on February 19 and after tax profit for the six months to December 31, 2008, is expected at between $850 million and $880 million - up from $601 million for the previous corresponding period.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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