Debenhams linked to fund-raising move

Department store chain Debenhams is planning a fund-raising move in a bid to reduce debt levels, it was reported today.

The Financial Times said the Debenhams board was looking at raising equity capital in order to cut its leverage. The company, which is due to issue a trading update next week, will discuss its options at a board meeting in January.

Despite the consumer downturn, Debenhams has grown market share in clothing and made further progress with its programme of store openings and refits. It is not expected to come close to breaching its banking limits for at least another six months.

About 60% of the company’s £1.1bn (€1.13bn) debt facility is held by four banks - Royal Bank of Scotland, HBOS, Lloyds TSB and Barclays. However, the fact that two of the banks – HBOS and Lloyds TSB – are due to merge makes it less likely that existing commitments will be maintained at current levels.

The FT said there was acceptance among directors that existing levels of debt were unsustainable.

Debenhams, which has around 140 department stores, reduced net debt in the last financial year by £33m (€33.91m) to £994m (€1,021m), but it acknowledged more initiatives were needed to improve sentiment towards the stock.

It pledged further cost savings and said in October it planned to lower capital expenditure by around £30m (€30.83m) to £90m (€92.5m) in the current financial year.

Debenhams’ former private equity owners heavily increased the company’s debt burden, making the group less attractive to investors on its stock market return in May 2006.