Australian conglomerate Wesfarmers, facing increased debt refinancing costs for its A$18 billion (US$17 billion) acquisition of retailer Coles, said it would sell new shares to raise A$2.57 billion (US$2.33 billion).
Wesfarmers will offer shareholders the new shares at A$29 each on a 1 for 8 basis for each Wesfarmers share they now own, a steep discount to Friday's closing price of A$36.97.
In addition, Wesfarmers said on Monday it has secured an additional A$800 million refinancing at average margins of about 100 basis points.
Wesfarmers said the funding commitments would refinance all of the outstanding bridge loan for its Coles Group acquisition, Australia's biggest takeover deal. Wesfarmers had around A$3.3 billion to refinance by October.
The global credit crunch has made debt funding harder to obtain and more expensive. Earlier this month, Wesfarmers sold $650 million of bonds in the United States, less than expected and at a higher cost.
Plans to sell a eurobond in April were postponed after the company decided to review its refinancing options, market sources told Reuters.
"The Wesfarmers board believes that an equity issue is in the best interests of shareholders given a backdrop of ongoing volatility in global debt capital markets," Wesfarmers Managing Director Richard Goyder said in a statement.
He said the equity raising would strengthen the company's balance sheet and provide it with financial flexibility.
The company asked for a trading halt in its shares to be extended to Tuesday, when it makes a semi-annual presentation to analysts and investors.
In a presentation released on Monday, Wesfarmers also said third-quarter sales figures for Coles, the country's second largest supermarket chain, showed a total rise of 5.2 percent.
It said Easter trading was solid and comparable store sales growth for the 15 weeks to April 13 rose 3.2 percent.
The Perth-based conglomerate, whose interests also include resources and insurance, said its coal division is expected to see earnings increase substantially in fiscal 2009 because of the sharp increase in negotiated export coal prices.
Joint lead managers for the issue are ABN AMRO, Deutsche Bank, Goldman Sachs JBWere, JP Morgan, Macquarie Capital Advisers and UBS. They have fully underwritten the entitlement offer.