Another one out of the woods: F&P Appliances

Another one out of the woods: F&P Appliances bolsters capital with Haier’s help

By Jonathan Underhill

May 27 - Fisher & Paykel Appliances Holdings Ltd. became the second NZX 50 company to avoid falling prey to creditors this year after attracting fresh equity capital from China’s Haier Group and selling stock at a discount.

Shares of FPA soared 52% to NZ$1 after the Auckland-based manufacturer said it would raise at least NZ$189 million via a rights issue and the sale of a 20% stake to Haier, China’s biggest manufacturer of home appliances. Haier will pay 80 cents a share for most of its stake while the rights issue is at 41 cents, a 38% discount to its last trading price.

Haier’s involvement “is a much better outcome in terms of value dilution,” said Paul Robertshawe, head of equities at Tower Asset Management, which will take up its entitlement and has underwritten a portion of the sale. “There’s an industry player that sees some value,” he said. At around NZ$1, the shares “could easily be good value.”

FPA’s refinancing plan comes after Nuplex Industries restored its balance sheet by selling shares at a deep discount to pay debt. Nuplex’s shares last traded at 44 cents compared to just 23 cents in its rights issue last month, and a top-up price of 27 cents.

FPA “was always going to get the money post Nuplex,” Robertshawe said.
The deal with Haier also gives FPA a foothold in China, which Robertshawe described as a “tough market to crack.” Haier gains exclusive marketing and distribution of Fisher & Paykel brand products in China, while FPA will have exclusive rights to sell Haier products in Australia and New Zealand.

FPA also concluded a new NZ$575 million facility with its consortium of banks.
The company will repay NZ$165 million of debt from the proceeds of the capital raising. It also plans NZ$106 million of property sales, inventory cuts of NZ$114 million and a reduction in surplus raw materials amounting to about NZ$38 million. Total debt reduction through 2010 will amount to NZ$306 million.

“Based on its current outlook, the directors are confident that the proceeds from the capital raising, together with the other debt reduction initiatives being undertaken, will be sufficient to meet the challenges of the current economic climate and the capital needs of the company,” FPA said today.

A year ago, the sale of a cornerstone stake to Haier, a low-cost rival targeting the cheaper end of the global appliance market, would have been unthinkable. Since then, slumping market demand and rising debt levels pushed FPA beyond the limits of its bank facilities, requiring it to seek short-term debt arrangements while putting together a proper refinancing plan.

The rights issue is fully underwritten by Deutsche Bank AG and First NZ Capital Securities Ltd. Haier is a sub-underwriter of the rights issue and will get to positions on FPA’s board.

FPA, described as an ‘iconic’ New Zealand company by Prime Minister John Key, separately today posted a full-year loss of NZ$95.3 million as sales slipped 2.4% to NZ$1.37 billion.

“Slowing consumer demand as a direct result of the global financial crisis significantly impacted sales in the second half of the financial year,” the company said. Added to that were one-time net costs of NZ$48.8 million for its global manufacturing reorganization, which included relocating plants to cheaper economies or nearer to key markets.

Other one-times items included impairment of intangible assets of about NZ$80.3 million and a net profit on the sale of New Zealand properties of NZ$8.4 million.

Haier’s total investment in FPA will be between NZ$80 million and NZ$82 million.
The two companies signed a cooperation agreement to share market resources, undertake joint business, corporate and product planning and share technical know-how. They will also cooperate on procurement to cut costs and share worldwide manufacturing facilities.

Some analysts had expected the most likely candidate for an alliance was Whirlpool, the world's biggest maker of appliances, which already has a technology agreement with FPA.

FPA’s new banking facilities include:
• Term loan facility in various currencies amounting to about NZ$$290 million expiring April 2012.
• Multi currency working capital facility of about NZ$$50 million expiring April 2011.
• Letter of credit facility with an expiry date of May 2011.
• Amortising facility in kiwi and Australian dollars amounting to NZ$235 million expiring April 2010.

FPA had debt of NZ$518 million at March 31, which is forecast to reduce to NZ$153 million, excluding the finance arm, in a year’s time.

The company’s total leverage ratio will reduce to 1.1 times by March 31, 2010, from 3.6 times at the end of March this year.

(BusinessWire)

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