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Australia's two pre-eminent retailers are very different animals.
You see it at every level. Woolworths is based above one of its busiest stores in the middle of Sydney's city centre, on the CBD's main thoroughfare, George Street. Just five or so floors beneath some of the company's main offices, the good people of New South Wales rifle through CDs and clothing: management could not be much closer to its customers. Coles Myer, on the other hand, is based in Melbourne, for one thing, in a gleaming and modern building a good half-hour outside the city centre in Tooronga. Their subsidiaries show a different approach too: Coles Myer owns the swanky Grace Bros and Myers chains; Woolworths the happily downmarket Big W and Crazy Prices.
The differences extend to the financing function too. Coles Myer is rated, Woolworths is not. Coles Myer accesses the public debt capital markets with deals that set benchmarks for domestic issuance; Woolworths, which these days barely needs capital anyway, makes its own landmarks with private placement issues. Woolworths hedges some things; Coles Myer hedges everything that moves.
Fluctuating debt
Our tour of these retailers starts in Sydney with Woolworths - no relation to its US and UK equivalents - which operates about 600 supermarkets and liquor stores alongside a line of gas stations. It owns the Big W, Crazy Prices and Woolworths Variety general merchandise stores and brands such as Dick Smith Electronics and Rockmans women's clothing. It reported operating profits of A$279 million (US$185 million) in 1998.
Woolworths' last significant year of borrowing was 1997. That year, it borrowed an A$800 million bilateral loan with nine banks involved; began an unrated MTN programme, raising A$100 million then and a further A$50 million in 1998; and launched a $100 million 144A private placement through JP Morgan and Merrill Lynch.
Explains Ayten Saridas, the company's treasurer: "Since then we have not done a lot because we have funds available. We have minimal cash: what fluctuates is the level of debt, and for that we have the bilateral rolling credit."
Indeed, rather than borrow anything else, it is rather more likely that Woolworths will restructure the capital it already has, possibly with a buyback. The company is unlikely to acquire overseas...