China deal provides lifeline for F&P

Photo / Glenn Jeffrey

Fisher & Paykel Appliances has pulled itself back from the brink but concerns remain over its debt repayment plans.

The whiteware manufacturer yesterday confirmed Chinese appliance manufacturer Haier would take a 20 per cent cornerstone stake as part of a $189 million capital raising.

The news pushed Fisher and Paykel's share price up 56 per cent, rising from 66c to close at $1.03.

Fisher & Paykel chief executive John Bongard said the deal was a "very good outcome" for the company and would secure the financial health of the business.

Bongard said its partnership with Haier had not been its only choice, it also had another investor waiting in the wings and could have gone with just a capital raising. "But Haier was the best value both short, medium and long term for staff and investors," he said.

Bongard expected the relationship to bring synergies to the group as the deal would give Fisher & Paykel access to the Chinese market through Haier's distribution while Haier would also be able to use Fisher & Paykel's distribution in New Zealand and Australia.

Fisher & Paykel has had a co-operative relationship with Haier since 2004 and some Fisher & Paykel dishwashers are already made in Haier's Chinese factories.

Bongard could not put a price on how much value he expected the deal to add but said the company would not be doing it unless there was tens of millions of dollars in it.

Of the $189 million capital raising, Bongard said the majority would be used to reduce the company's debt levels, which hit $518 million at the end of March.

The group has renegotiated a $575 million facility of which $235 million must be paid back by the end of April next year.

Bongard told analysts $165 million of the capital raising would be put towards the $235 million and it hoped to find the rest from selling $76 million in excess inventory.

"The board is confident that, based on the current outlook, the proceeds of the equity raising, together with other debt reduction initiatives, will be sufficient to meet the challenges of the current economic climate and the capital needs of the group."

Tyndall Investment Management fund manager Rickey Ward said the deal was good news and alleviated concerns about the company's balance sheet in the short term.

But he remained concerned about the longer-term ability of the company to meet its debt repayment plans.

"We would have preferred to have seen the company raise more money to allow it more flexibility."

The repayment relies on inventories being sold down as well as potential property sales.

"We would rather they didn't have to rely on those things," Ward said.

Market commentator Arthur Lim said the sale of Fisher & Paykel's East Tamaki property was conditional on finance and money was tough to raise in the current market.

THE DETAILS
* Chinese appliance manufacturer Haier to take 20 per cent stake in Fisher & Paykel Appliances.
* Minimum of $189m capital raising of which $143m will be a rights issue.
* Haier to put in between $80m to $82m.
* New $575m bank facility agreed.
* Planned debt reduction of $306m by March 2010.