Australia's Wesfarmers to sell A$2.6 billion in shares

By Victoria Thieberger

MELBOURNE (Reuters) - Australian retail-to-power conglomerate Wesfarmers Ltd (WES.AX: Quote, Profile, Research, Stock Buzz), facing increased debt refinancing costs for its A$18 billion ($17 billion) acquisition of Coles, said it will sell new shares to raise A$2.57 billion.

The share issue, and another A$800 million in funding, would refinance the outstanding bridge loan for its Coles acquisition, Australia's biggest takeover, at a time when the global credit crunch has made debt funding more costly and harder to obtain.

In a trading update, Wesfarmers warned that a slide in consumer sentiment was beginning to dampen trade at its other retail units that depend on discretionary spending, including hardware and clothing chains.

Wesfarmers will offer shareholders the new shares at A$29 each on a 1 for 8 basis for each share they now own, a discount of more than a fifth to Friday's closing price of A$36.97.

Analysts said the issue should be well received given the size of the discount and because many institutional investors were underweight Wesfarmers following the Coles takeover.

"With the high cost of debt it was without doubt the best option," said Legg Mason Asset Management fund manager Tony Pearce.

"If they had to roll over the debt they would have had to pay a higher interest cost. That has been effectively offset by this equity dilution, and the net is they are less highly geared in this uncertain debt environment."

In addition, Wesfarmers said on Monday it has secured an additional A$800 million refinancing at average margins of about 100 basis points.