Builders' merchant and DIY store operator Grafton Group plans to raise €265 million from the capital markets to refinance part of its existing debts.

Australian investment bank Macquarie Securities is in the process of raising $325 million (€265 million) in the US for the Irish company.

Macquarie originally set out to raise $150 million but the issue was oversubscribed, so Grafton decided to go for the larger sum.

The debt is in the form of loan notes repayable at less than 1 per cent above the US Treasury's basic wholesale inter-bank rate when they mature. A tranche of $25 million matures in four years, and two separate $150 million tranches mature in five and 10 years respectively.

Grafton intends to "swap" the loan into sterling. When it does this, it will be repaying at rates of less than 0.6 per cent above the basic London inter-bank wholesale rate.

Sources in the US said that the company was able to raise the money cheaply in current market conditions. The margin involved is narrower than that generally obtained by companies in sectors related to building. Several US investors described the rates as "too tight" for them to take part.

Grafton intends to use the cash raised to pay off some of its existing debt. At the end of last year, the group owed €474 million to banks and other lenders.

The company did not comment yesterday, but is likely to announce the deal once it has raised the money.

Earlier this year Grafton took over its smaller rival, Heiton. It now operates more than 30 building supply outlets and 15 DIY stores in Ireland.

In the UK, it has 280 building and plumbing supply outlets. The company is quoted on the Dublin and London stock exchanges and has a market capitalisation of over €2 billion.