Deadline draws near for F&P

John Bongard. Photo / Dean Purcell

With the April 30 repayment deadline for an $80 million lifeline from its banks looming, Fisher & Paykel Appliances is expected to unveil capital-raising plans any day, although the company is downplaying speculation it will act early this week.

To secure the funds F&P requires at a price that does not undermine the remaining value of its existing shares, the whiteware manufacturer will have to convince investors it has a credible recipe for success in the tough post-credit-crunch environment.

F&P Appliances indicated in mid-February that it was considering an equity raising, likely to take the form of a pro rata entitlement offer to eligible shareholders.

The proceeds would, it said, be used to repay debt, much of which was denominated in overseas currencies, was unhedged, and had consequently mushroomed as the New Zealand dollar weakened.

In a subsequent market update, it announced the $80 million interim banking facility, which must be repaid or renegotiated by April 30 as part of what was projected by then to be $570 million in total bank debt, and said it was continuing to consider "a range of alternatives to strengthen its balance sheet".

With that deadline approaching, market sources told the Business Herald late last week they expected an announcement early this week.

"We think it's a rights issue, possibly with a cornerstone shareholder in it and most likely looking to raise $150 million to $200 million," one source said.

The organising broker was said to be First NZ Capital, which on Friday declined to comment

F&P Appliances managing director John Bongard dismissed speculation the company would act this week, saying he would be in the United States.

The company and its board, chaired by Gary Paykel, have been criticised by some market commentators for failing to act earlier to bolster the balance sheet, and even for not taking hard decisions to outsource manufacturing sooner.

That has raised questions over the quality of its governance, although Bongard is a generally well-regarded manufacturing sector chief executive.

The company is said to be looking for new directors and is understood to have been working on a fresh business plan. A well-placed source said some institutional investors would regard fresh blood on the board as a prerequisite before investing new funds.

Hamilton Hindin Greene broker James Smalley, who believes the capital raising will inevitably dilute existing shareholders, said investors would need be convinced they were not throwing good money after bad.

"To rebuild investors' confidence in the company and get the capital raising away successfully they're going to have to lay out some kind of path to profitability.

"That's what I'm going to be looking for as an adviser in deciding whether we recommend clients take it up."

Smalley said the company was known for its good products and had been profitable until 18 months ago, but given the decline in key markets it needed to show how it was going to operate in the new environment.

Nevertheless he saw some encouraging signs for the company. Among these were indications that credit market conditions were improving.

Equity markets were showing increased appetite for risk, which could only help the capital raising.

Meanwhile, although the fall in the New Zealand dollar had contributed to the company's worsening debt position, Smalley pointed out it should have the positive longer-term effect of boosting profits as overseas earnings were converted into the local currency.

Fisher & Paykel Appliances shares closed up a cent at 47c on Friday.