Wesfarmers under pressure to offload debt

Just days after announcing its intention to hold on to the struggling Kmart chain, Wesfarmers is coming under pressure from international credit markets to refinance $4 billion of short-term debt used to pay for Coles.

Wesfarmers borrowed $10 billion to fund the acquisition of Coles, and selling parts of its widespread interests would help reduce the debt it needs to refinance as well as cut increased interest payments, said to be as high as $280 million.

The Age newspaper has speculated that one business that would certainly attract interest is the coal division, which consists of three assets – the Curragh coking coal mine in Queensland, the Premier brown coal mine in Western Australia, and a 40% interest in Rio Tinto’s Bengalla coal mine in the Hunter Valley.

The decision to keep Kmart was in part for its strategic value, say analysts. Kmart has 182 stores across Australia and New Zealand, often in prime commercial locations. These locations are at a premium and Wesfarmers would lose an option on these sites and face direct retail competition were it to sell Kmart.

“By retaining Kmart, Wesfarmers has prevented the creation of a new competitor to Wesfarmers’ existing Target and food and liquor divisions,” a Citigroup analyst told The Australian Financial Review.

But Wesfarmers will have to invest between $100 million and $150 million annually for up to five years to overhaul the Kmart chain, Citigroup estimates.