Woolworths may borrow cheap Asian debt or raise equity to fund a $US3 billion acquisition of grocery chain ParknShop if it proceeds with plans to expand offshore for the first time since 2005.
Investors and bankers said that by tapping Asian rather than domestic or US debt markets Woolworths could afford to offer more for Hong Kong's second largest grocery chain – outbidding Japan's Aeon and Thailand's Charoen Pokphand Group. Borrowing in local currency would create a natural hedge, reducing currency risk.
"If it were to be funded with low-cost Asian debt you'd most likely see an underwritten dividend reinvestment plan put in place – the economics could stack up better and Woolworths could also justify paying more for the acquisition," said BT Investment Management's Sondal Bensan.
Other investors said Woolworths could take advantage of its high share price to raise capital, saying a $1.5 billion equity raising would represent a fraction of its $42 billion market value.
"If they can get it for a reasonable price and use equity to buy it that's the best way to do it because they're quite highly rated at the moment," said Aberdeen Asset Management senior investment manager Andrew Preston.
Woolworths has refused to confirm or deny its interest in ParknShop and declined to comment on an Australian Financial Review report it was preparing to submit a final bid in the next week.
Investors have mixed views on Woolworths' first move offshore since buying Foodland's New Zealand assets in 2005 and urged it to take a disciplined approach to bidding.
The move offshore highlighted that Woolworths was running out of growth options in Australia.
