Lowy's Westfield Given A Poor Credit Rating

Sydney Morning Herald

Monday May 2, 1988

By ALAN DEANS, Investment Editor

Mr Frank Lowy's investment arm Westfield Capital Corporation Ltd has received a poor credit rating in the first risk assessment since the empire listed in June.

Australian Ratings Pty Ltd has ranked Westfield a BB status, meaning it has a "satisfactory capacity to meet unsecured debt obligations". BB is the fourth lowest rating the group gives out.

Australian Ratings says Westfield "is exposed to the volatile equity markets".

"In 1987, Westfield's investment holdings and liquidity position gave the company a fragile financial structure, which has, to some extent, been relieved by the February 1988 divestment of its ACI holding."

The ratings report says the sale of Westfield's 20 per cent of packaging giant ACI International Ltd realised $317 million and enabled the group to reduce borrowings. It estimates debt atabout $130 million or about 20 per cent of shareholders' funds.

Australian Ratings says Westfield's equity base should be written down from$506.4 million at last balance date to $260 million. This would reflect the fall in the value of the group's investments, particularly its 45 per cent holding in television operator Northern Star Holdings Ltd.

Such a writedown results in the company's gearing ratio jumping to about 50 per cent, but still places it lower than the 84.5 per cent level at June 30 last year.

The report said: "Lower gearing supports a rating of BB", implying that a worse rating wouldhave been given without the recent retirement of debt.

Westfield is facing an unrealised loss of about $250 million on its Northern Star investmentagainst the book value of $410 million, Australian Ratings says.

"With the three major television networks developed over the past 12 months at substantial prices, profitability of each is likely to be strained in the medium term and a Northern Star share price recovery to the Westfield book value may be protracted."

The report says Westfield's minority equity positions do not allow it access to cash flows. It estimates the company will this year receive only $12 million in dividends but pay $15 million in interest.

It notes that this margin is not "unmanageable" because it could consolidate Northern Star's earnings if it moved to more than 50 per cent control.

© 1988 Sydney Morning Herald

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