F&P split plan casts pall on credit ratings

By DANIEL RIORDAN

Ratings agency Standard & Poor's has placed Fisher & Paykel on negative creditwatch after the company released its restructuring plans on Tuesday.

The ratings apply to F&P's triple-B-minus/A-3 corporate credit ratings and the A-3 commercial paper rating of Fisher & Paykel Finance.

The plans call for the company to be split into two - a healthcare business (F&P Healthcare) and a business containing appliance and finance operations (with a working title of Newco).

While analysts and fund managers have welcomed the restructuring, saying it will unlock the value of the more profitable healthcare arm, S&P's concerns are with Newco.

The agency said the negative creditwatch reflected Newco's more narrow focus on the mature and highly competitive Australasian whiteware market, its loss of access to the Healthcare division's growing cash flow and US dollar revenues, and uncertainty about its financial policy, given heightened operating risks in the Australasian whiteware industry, particularly in Australia.

Competition in the Australian whiteware market, which accounts for about 60 per cent of Newco's unit sales, continues to intensify, with Email negotiating the sale of its whiteware operation to Electrolux and imports undermining prices and margins.

In the six months to September, F&P's appliance division operating margin fell to 3 per cent from 5.2 per cent, largely as a result of competition from discounted Korean washing machines and fridges in Australia and New Zealand, noted S&P.

The rating agency said it would seek further clarification on the funding structure and financial policy of Newco, and its ability to restore its returns to satisfactory levels and finance further growth.

F&P hopes to complete the split by the second half of next year, pending shareholder approval. Managing director Gary Paykel said more news on the new structure would be released as details were finalised.

Meanwhile, a concern that Newco's 20 per cent stake in Healthcare might act as a blocking mechanism for any takeover of Healthcare has been countered.

ABN Amro analyst Gary Baker said that with separately run companies it was inconceivable that directors of Newco would block an offer for the stake favourable to shareholders.

Mr Paykel said the only reason for the shareholding was to maintain close relationships between the companies and continue to take advantage of shared technology initiatives.