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Warehouse lures investors with 5-year bonds paying at least 7.3%, squeezing out public pool

Tuesday 23rd March 2010

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Warehouse Group, New Zealand’s largest discount retailer, has received overwhelming demand for its 5-year bonds paying a minimum 7.3% annual interest, which were two times oversubscribed, removing the need for a public pool.

The company, which operates 86 Red Sheds and 47 stationery outlets, plans to use the $100 million proceeds to open new stores and expand its product range over the next five years, it said this month. Warehouse had disappointing peak Christmas trading and this month announced first-half earnings that barely budged from a year earlier at $57 million. Sales fell 1.2%, due to weak consumer spending and increased competition.

The shares last traded at $3.98 on the NZX. They are rated a ‘hold,’ based on the consensus of ten recommendations compiled by Reuter’s.

Warehouse is back in expansion mode after its move into groceries and liquor misfired, forcing the company to wind back its Warehouse Extra stores and denting earnings.The bonds will be sold to clients of participants in the bookbuild, it said in a statement today.

Retailing has had mixed results since the economy emerged from recession last year. While retail sales climbed more than expected in January, the gain was driven by auto-related industries and core retailing was weaker than forecast, based on government figures. Kathmandu Holdings posted first-half earnings that beat its prospectus forecast, while clothing chain Hallenstein Glasson Holdings forecast a 50% jump in interim profit, after buoyant Christmas trading.

Warehouse’s June 15, 2015, bonds, which will trade on NZX’s debt market, pay a minimum interest rate of 7.3% with a margin of 2.15%. Interest will accrue as soon as an investor’s money is banked. The final rate will be announced on April 28. The offer opens this Thursday.

The debt provides a higher return than term deposits currently on offer, according to the website, which shows an AA rated term deposit at ANZ Bank pays 6.75%.

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