Australia's worst-kept secret has finally been unveiled, a monster capital raising from debt-strapped Wesfarmers, which ought to eliminate the refinancing fears for some time.

Despite a sneaky press release from the company heralding a $2.8 billion capital raising - whose headline number shot around the world via the wire services - Wesfarmers has really gone for the jugular in a bid to raise a maximum of $5.6 billion. The $2.8 billion figure is the bottom end of the range.

To dispel any misunderstanding then the 3-for-7 offer applies on both WES and WESN (the protected shares from the Coles takeover).

There are 815 million odd shares on issue in total between the two (WES and WESN) which means there will be another 349 million shares issued at the top end of the range.

That equates to $4.7 billion before the $900 million placement. Internally, Wesfarmers is believed to be assuming a 15 % take-up from retail shareholders, which make up 50% of its share register.

Protected species

The issue has a sure-fire structure, backstopped as it is by a chunky $900 million going to two big institutional investors Capital Group and Colonial. That part is fully underwritten, locked in. They take stock at $14.25 a share and the three-for-seven rights issue is priced at $13.50 - a large discount but one which might have been larger had the ban on short trading not been extended once again.

Indeed, the timetable for the issue suggests Wesfarmers' enjoys something of a protected species status with the Government and regulators. The deal closes on March 5.

Curiously the shorting ban, which was extended last night following the Wesfarmers' board meeting, is scheduled to come off on March 6. Wesfarmers' adviser Macquarie, which is also covered by the shorting ban, is said to have lobbied for an extension along with other financial companies.

Moreover Wesfarmers could hardly be considered a financial stock as its insurance operation, which delivers the carve-out, is a relatively small part of the business.

So, one perspective on this regulatory leg-up is that ASX shareholders - via a drop-off in trading volumes - and the reputation of Australia's financial markets - via a silly shorting ban which benefits a few and penalises many (UK and US pulled their bans last year and our financials got hammered last September and October after the ban was put on) - have been sacrificed to benefit a handful of big players.

Safety net

Wesfarmers' decision to bet the company on a hairily-leveraged $18 billion takeover bid for supermarket juggernaut Coles at the top of the market in 2007 has been rewarded with a safety net.

Those whose livelihoods are on the line thanks to the precipitous drop away in share market liquidity - a consequence of the ban - may scream blue murder.

Still, the other perspective, and one which is equally logical, is that Wesfarmers with its thousands of jobs and sheer economic presence must be looked after.

Another consequence of the ban on shorts is that there will be no arbitrage on this deal from funds managers. Again, liquidity will suffer. However, Wesfarmers' share price is likely to benefit as the funds will not sell the ordinary shares as they buy the placement stock.

The placement stock, though, may trade at a greater discount as it will not be traded as much, it is not entitled to the 50 cents dividend and will not carry the same stock market code.

Out of the woods

Barring another momentous blow-up in world markets then this issue should do well and gets Wesfarmers' out of the woods on the debt front.

The deal, done in conjunction with its bankers, sees its medium term refinancing commitments fall from $6.4 billion to $1.6 billion.

Lack of visibility on earnings and uncertainty over a prospective turnaround of the Coles business, not to mention earnings on the coal front, will continue to affect confidence for some time. However, in the short to medium term, today's deal is a boon for Wesfarmers' shareholders.

There is some consternation among funds managers about the selective placement to Capital and Colonial, especially since Capital Group was a huge seller of the stock last year from $30 a share down.

The conservative assumption on the retail take-up of the rights issue is not surprising as retail investors are presently spooked by the volatility in the stockmarket, and CSR recently had a rights issue which attracted only a 20% take-up.

Dovetailing with the institutional dissatisfaction over the selective deal with the two funds - which in Wesfarmers' defence may have been necessary to lock the issue down - retail investors are also expressing concern.
 
Here is an email from one small shareholder which illustrates the sentiment, and the discount.

mwest@fairfax.com.au

BusinessDay