November launch for spin-off Coles

COLES is set to take to the stock exchange as a separate company by November, with owner Wesfarmers to keep a smaller stake in the supermarket giant than expected.

The Perth-based conglomerate has also revealed Coles is expected to have a dividend payout ratio – loosely the amount it pays out in dividends relative to earnings – of 80 to 90 per cent.

Wesfarmers will keep a 15 per cent stake in Coles, less than the 20 per cent shareholding it talked about keeping when it unveiled plans earlier this year to spin off Coles into a separately listed company.

Wesfarmers, which also owns Bunnings, Kmart, Target, Officeworks and a range of resources, workwear and industrial businesses, yesterday provided extra details about its demerger of Coles.

Wesfarmers chief Rob Scott said Coles would start life with a strong balance sheet with net debt of $2 billion. That would support a “strong” Baa1 or BBB+ credit rating, Mr Scott said. On Moody’s credit-rating scale, a Baa1 grade is a lower-medium-grade investment credit rating.

“We’re confident that we’re setting Coles up for future success,” Mr Scott said yesterday.

Wesfarmers said the demerger would be carried out through a scheme of arrangement, under which eligible shareholders would receive one Coles share for every Wesfarmers share held.

James Graham has been named proposed chair of the independent Coles. Mr Graham has stepped down from his position on the Wesfarmers board to take up the role.

Patersons director of Private Wealth Research Greg Galton said the dividend strategy for Coles was fair, considering the group’s improved financial performance under Wesfarmers’s ownership over the past 11 years. But he cautioned Coles and Woolworths faced increasing competition from Aldi, US giant Costco and newly arriving German chain Kaufland.