Fitch affirms Wesfarmers at BBB+

Fitch Ratings said it affirmed Australian-based retailer Wesfarmers Ltd.’s long-term issuer default rating and senior unsecured rating at BBB+.

The outlook is stable after the company announced an agreement to acquire UK retailer, Homebase.

On Jan. 18, Wesfarmers announced an agreement with Home Retail Group plc (Home Retail Group) to acquire its 100% holding in Homebase for £340 million (around A$705 million). The acquisition will be fully debt financed and is expected to complete at the end of the first quarter of the 2016 calendar year.

Wesfarmers will invest around £500 million in the Homebase business to transform it to a new Bunnings-branded business over three to five years. Wesfarmers expects the transaction to be earnings per share accretive after three years.

While the proposed acquisition will lead to a weakening in Wesfarmers credit metrics, Fitch said it views the magnitude of incremental debt as manageable within Wesfarmers' current BBB+ rating. The agency expects Wesfarmers' leverage to peak in fiscal year 2016 immediately following the debt-funded acquisition, with Net Debt to Operating EBITDA increasing to 1.23 times at FY16 from 1.17 times at FY15 (which also reflects a A$861 million capital distribution in December 2014).

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