F&P Appliances likely to raise $150-200 million capital next week, Forsyth Barr

Friday 22nd May 2009

Fisher & Paykel Appliances, facing a deadline to repay or refinance a temporary banking facility, may announce plans to raise around $150 million to $200 million with its full-year results next week, according to Forsyth Barr.

The Auckland-based manufacturer gained waivers to its banking covenants in March and secured the temporary facility with its syndicate of banks, gaining more time to refinance existing debt that may have ballooned to $570 million as at March 31. In April, the $80 million facility was extended through May 29. The company needs to put its debt “onto a secured, rather than negative pledge basis” before the temporary facility expires, Forsyth Barr’s Guy Hallwright said.

F&P Appliances was caught by the global slump, which sapped demand while a weakening New Zealand dollar drove up costs of overseas debt it took on to relocate plants to cheaper sites nearer export markets. Its shares have tumbled 54% this year, second only to the slide in Nuplex Industries, which bit the bullet in March and sold shares at a deep discount to strengthen its balance sheet. F&P has said it is considering capital raising and bringing on board a cornerstone investor.

"Investors want the company to survive” and will support a placement at the right price, said Rickey Ward, equities manager at Tyndall Investment Management. Any issue will probably be through a discounted share offer or pro-rata offering, he said.

F&P sought to reduce wage costs by becoming the first company to join the government-subsidised nine-day fortnight scheme. The appliance company so far has resisted tapping investors for more funds, instead focusing on freeing up funds through the sale and lease back of properties including its 14.5 hectare East Tamaki site and property in Cleveland, Australia.

The property transactions, though, are seen as only a stop-gap measure.

Paul Harrison, who helps manage $2.5 billion at BT Funds Management, said the company needs to raise capital, but it’s “just replacing one debt obligation with another” by selling property and leasing it back.

Forsyth Barr's Hallwright forecasts a full-year net loss of about $17 million, or earnings before one-time items of $28 million. The consensus of estimates compiled by Reuters for a $5.3 loss or earnings before one-time items of $27 million.

F&P has cut costs as the global downturn and weaker currency swelled the value of overseas debt. It will slash around 50 jobs in New Zealand and Mexico as demand for high-end appliances dwindles at the same time competition spurs price cuts.

Hallwright said while there’s some talk of an improvement in the U.S. and Australia and there may be a small lift in the manufacturer’s operations, appliances are still struggling and it is unlikely the bottom line will give much cause for relief.

Whirlpool Corp., the world’s largest appliance maker and a technology partner for F&P, last month posted a 28% drop in first quarter earnings. Still, the shares climbed as the results beat expectations as the U.S. company squeezed down on costs.

Whirlpool stock has doubled since reaching a low of US$19.39 in March.

F&P sank to a record-low 37 cents in March, dragged down by Whirlpool’s sliding stock price and concern about its debt levels. Since then the shares have clawed back some of their losses and gained 3.2% to 65 cents today. The stock was at NZ$4.88 in July 2006.

Forsyth Barr currently values the shares at $1.26 and has a ‘hold’ recommendation, but it expects “substantial dilution” as it raises more equity capital. It also forecasts the company will decide against paying a final dividend.

Morningstar Research said raising capital “at the current depressed share price makes little sense and would be highly dilutive to existing shareholders” and should only be used as a last resort.

Businesswire.co.nz

Comments from our readers

No comments yet