RPT-UPDATE 1-Australia's Wesfarmers to retain Kmart stores

(Repeats to add UPDATE tag) (Adds company comments)

MELBOURNE, March 19 (Reuters) - Australian conglomerate Wesfarmers Ltd (WES.AX) decided to retain the Kmart discount store chain it bought as part of its $18 billion purchase of retailer Coles Group.

Following a strategic review, Wesfarmers Managing Director Richard Goyder said on Wednesday the group had been encouraged by Kmart's improved performance in the latter months of the first half of the financial year and the prospects for growth.

Kmart managing director Larry Davis, who led a turn around in the performance of Coles Group's Target stores before heading Kmart, opted to retire.

Wesfarmers said the position would be filled by Kmart's general manager of merchandise, Mark Goddard, until a permanent replacement was recruited.

There had been speculation that the company might sell Kmart to help pay down debt.

Wesfarmers spokesman Keith Kessel said the company had no need to sell any assets due to the Coles transaction.

It was also confident of refinancing A$4 billion of debt this year, although at higher interest rates.

"As a BBB+ rated company, we expect to complete the refinancing, albeit at higher interest rates than would have been the case last year," chief financial officer Gene Tilbrook told Reuters Basis Point.

He declined to comment on what he called speculation in the Sydney Morning Herald newspaper that the company had rejected an offer to refinance the debt at 4 percentage points above the cash rate.

The global liquidity crisis that started in July last year has pushed up the cost of funding for lenders significantly over the last six to nine months.

The wholesale cost of funding for Australian banks has increased by at least 60 basis points since the fourth quarter of last year.

Wesfarmers flagged to the market in February it may issue hybrid, convertibles or medium-term notes to help refinance debt acquired to finance the Coles acquisition.

"We are looking at a number of alternatives and conducted some market soundings with encouraging responses," Tilbrook said on Wednesday.

Wesfarmers and its lead managers Barclays Capital (BARC.L), Goldman Sachs (GS.N) and JP Morgan (JPM.N) were set to roadshow a U.S.-dollar bond in March in the U.S. private placement market to refinance some of the debt, sources told Reuters last month.

Wesfarmers, which is rated BBB+ by Standard and Poor's and Ba1 by Moody's Investors Service, has A$4 billion of debt to refinance by October, part of a A$10 billion corporate facility arranged by ANZ (ANZ.AX), BNP Paribas (BNPP.PA) and nabCapital (NAB.AX).

Based on its current BBB+ rating, the margin over BBSY is 32.5 basis points for the one-year maturity. ($1=A$1.08) (Reporting by Sonali Paul and Sharon Klyne)