Capital raising, store closures may be in store for Woolies
Australia's biggest retailer, Woolworths, might launch a capital raising or start closing down supermarkets after opening too many in the past decade.
That's the view of broker Macquarie, which says a $2 billion capital raising would help refurbish Woolworths' tired-looking stores and shore up its balance sheet.
Analysts Andrew McLennan and Elijah Mayr said Woolies was at risk of further credit downgrades once its hotly anticipated full-year results are released next month.
"Should the result be worse than anticipated, or should any stabilisation/recovery be pushed out beyond the 2017 financial year, Woolworths could be in a position where its investment grade is threatened," the pair told clients.
"Woolworths is likely considering potential asset sales, dividend management and capital raising options to shore up its balance sheet."
Woolworths said in May it was looking at a "number of options" to support its credit rating, including underwriting its dividend reinvestment program (DRP), after ratings agency Standard & Poor's again sliced its credit rating for the company and rival Moody's indicated it was reviewing its rating.
Chief financial officer David Marr told analysts in June that the company's balance sheet was "solid" and it had options if things deteriorated further. These could include a DRP underwriting, asset sales, reduced capital expenditure and a smaller dividend.
A one-time market darling,
Woolworths has come under pressure from short sellers due to the resurgence of Coles, the nation's second-biggest supermarket chain, and the inroads made by German discounter Aldi.Woolies' expensive and now-abandoned foray into home improvement, and the continued poor performance of its discount department store chain, Big W, have also added to its woes.
One fund manager told Fairfax Media recently that with the right strategy, a capital raising would be "palatable" for investors, and preferable to "distressed" asset sales.
Another investor said although the board "would be remiss" to not consider a raising, a DRP underwriting or asset sales were more likely.
A recent decision to segregate its corporate structure has raised expectations that Woolworths will split itself up; for example, Big W, the hotel business ALH or the lucrative liquor arm could be sold or spun out.
Woolworths' full-year results are expected to show a steep fall in underlying profit and be marred by restructuring costs and impairments. They will be the first annual result for chief executive Brad Banducci, who was appointed at the start of the year.
Woolworths will also shortly announce its strategic review of all of its businesses.
http://www.smh.com.au/business/reta...-be-in-store-for-woolies-20160722-gqbiae.html
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