Sainsbury to issue bonds to clear debts, finance pension funds

Sainsbury to issue bonds to clear debts, finance pension funds

	Published : Sun, 26 Feb 2006 07:50 By : David Simms Print this Story

LONDON: Supermarket chain J Sainsbury Plc. will sell bonds worth 2.07 billion pounds, secured against its property assets, in order to cut its financing costs and to reduce a huge deficit in its pension funds.

The company announced that it will issue 1.2 billion pounds worth of 12-year floating rate notes and 870 million pounds worth of 25-year fixed rate bonds, secured against 127 of its larger supermarkets, valued at 3.55 billion pounds.

It will use a sizeable amount from the bond issue to clear its outstanding debts of 1.7 billion pounds, thereby cutting interest payments by 12 million pounds a year from next year.

Sainsbury said it will pay 350 million pounds to its pension schemes in two instalments. This and increased contributions by it and employees will wipe out an estimated 582-million-pound deficit in the two funds the company operates for its workers and staff.

The enhanced contributions will yield 18 million pounds a year. The company said members of the pension funds will be asked to increase their annual contributions by 3 per cent from September or accept lower benefit levels.

Sainsbury's chief executive Justin King said the increase in members' contributions, together with the changes in future benefits, will achieve a more appropriate and balanced sharing of cost and risk.

The financial arrangements will result in a pretax charge of 37 million pounds this fiscal, the company said, as a result of having to pay for early redemption of existing unsecured bonds.

Sainsbury said the tender offer to existing bondholders started Friday. Roadshows for the proposed refinancing will begin 1 March through 9 March. Morgan Stanley and UBS are the lead managers for the bond sale and the buyback.

Sainsbury shares climbed 6.5 pence to 326 pence, valuing the company at 5.5 billion pounds.