Bond investors are souring on Woolworths as sales slump at Australia’s largest supermarket chain and the company still hasn’t named a new boss.
The cost of insuring the Sydney-based retailer’s debt against non-payment this week climbed to a four-year high of 127.5 basis points, while the premium over the benchmark iTraxx Australia credit-default swap index reached the most since at least 2007. Its bonds are the worst-performing local company debt this year in Bank of America Merrill Lynch’s Australia Corporate Index.
No replacement has been named since Chief Executive Officer Grant O’Brien announced in June his plan to retire. The lack of a successor comes as Woolworths faces stronger competition and anemic consumer demand. Moody’s Investors Service and Standard & Poor’s both shifted their debt rating outlooks to negative after the grocer last month cut its profit forecast and revealed a second straight quarterly drop in same-store sales.
“They seem to be in limbo at the moment and will remain that way probably until somebody’s appointed,” said Michael Bush, Melbourne-based head of credit research at National Australia Bank Ltd. “The bonds have obviously underperformed.”
Woolworths’ longstanding duel with Wesfarmers-owned supermarket rival Coles has been complicated in recent years by the emergence of German-owned discounter Aldi as a competitor, and the resulting price war has hurt Woolworths’ takings.
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