Debenhams has raised £323m by placing new shares in a bid to slash its £972m debt pile.

The retailer placed 404 million shares – equivalent to about 31.4 per cent of the enlarged stock base – on June 4. Investors paid 80p a share, a 13.3 per cent discount on the closing price the day before.

Debenhams’ private equity backers CVC Capital and TPG, which owned 8 per cent and 13 per cent respectively before the placing, did not take part and their holdings have been diluted. CVC sold 60 per cent of its holding. Representatives of each backer quit the board.

As well as reducing the retailer’s debt – a concern to shareholders and the City since its return to the market in May 2006 – and giving headroom on covenants, the placing will put £250m cash on its balance sheet to fund opportunistic acquisitions.

Debenhams has used £50m of the share sale to repay part of a £150m loan payment due in May 2010.

Debenhams chief executive Rob Templeman said that since posting its interim results, the retailer had received a string of enquiries from existing and potential investors “saying they would be supportive if we did a capital raise”.

He added that the share placing is a chance for new investors to get involved, and that the price of the new shares “reflects shareholder appetite”. CVC and TPG have backed Debenhams for six years.

Templeman said that any acquisitions would be accretive and similar to its deal for Principles’ stock.

In the 12 weeks to May 23, like-for-like sales dropped 0.8 per cent year on year and total sales rose 3 per cent. The retailer said pre-tax profits were ahead of last year. Gross margin improved by 90 basis points.

Debenhams gained fashion market share in the 26 weeks to April 26, according to TNS Worldpanel.

The city’s take

  • KBC Peel Hunt analyst John Stevenson said his forecasts could be upgraded, “reflecting trading initiatives and pricing power, with a potential for acquisitions offering further opportunity to enhance profitability against the backdrop of a more staid sector outlook”.
  • Investec analyst Katharine Wynne said that renegotiated covenants “should give comfortable headroom for the foreseeable future” but that “a material sacrifice has been made in terms of the weighted average cost of debt”.
  • Pali analyst Nick Bubb said that the trading update “looks disappointing at first sight, implying like-for-like sales down 4.5 per cent over the last five weeks”.

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