ANZ rolls out more funding for Feltex

Bruce Sheppard

ANZ Bank has been forced to extend its loan to Feltex from $128 million to more than $140 million as the troubled carpetmaker's suppliers demand quicker payment, say people familiar with the situation.

The sources said the suppliers' actions, which raise the risks of a further meltdown of Feltex shares, were sparked by fears Australia's Godfrey Hirst and the dynasty behind the Sleepyhead bedware maker would walk away from planned rescue bids.

If no offers are made, Feltex will be at the mercy of ANZ. The bank would likely respond by calling in its loans and appointing a receiver, leaving the carpet company's suppliers in the cold.

Feltex's shares, which floated on the stock exchange in 2004 at $1.70 apiece, yesterday fell 1.1c to 10.1c.

The increase in debt may hamper Godfrey Hirst's and the Sleepyhead consortium's rescue plans.

Suppliers would eventually extend longer lines of credit as they became more confident that Feltex could cover its debts. But in the short term, the takeover offers would have to cover this $15 million increase in so-called working capital.

Godfrey Hirst has offered to pay $141.8 million for the Feltex's carpet making operations. Its offer would leave the firm with as much as $13.8 million, or 12c a share. This would be distributed to shareholders ahead of a liquidation.

The Sleepyhead consortium wants to inject as much as $40 million and keep Feltex listed on the NZX.

Feltex and the two suitors declined to comment.

ANZ also declined to comment on the capital injection, but the development may throw some light on its warning this week that it would call in its loans if Feltex and Godfrey Hirst did not resolve their commercial issues blocking a takeover deal.

The ANZ's deadline for resolution by Monday morning came and went. Although documentation had been finalised, undisclosed matters remained outstanding. Godfrey Hirst said it had "material concerns" arising from its examination of Feltex's books.

ANZ also refused to comment on the breach of this deadline.

Bruce Sheppard of the Shareholders' Association said the Feltex board should have disclosed the suppliers' concerns and the increase in borrowing to the market.

The value of Feltex's debt now appeared to match and possibly exceed the $141.8 million Godfrey Hirst said it would pay for Feltex's assets. This would leave little for shareholders.

"[The increase in debt] represents a fundamental change, it affects how much shareholders will get," he said.

If Feltex's debt now exceeded Feltex's value, ANZ might decide to put it into receivership.

Sheppard said that if it remained listed it would have to obtain shareholder approval for any liquidation of assets. Shareholders would find this hard to stomach. "Shareholders now have every incentive to frustrate a sale," he said.

Sheppard is leading a campaign to sack four of Feltex's directors, but not former Deloitte chairman John Hagen.

The association also wants to explore the potential of the company taking legal action against the private equity fund Credit Suisse First Boston Asian Merchant Partners, which sold Feltex in the float.

Feltex was caught unawares by the speed and extent of the trading downturn at the start of 2005. Since then, it has issued a string of profit warnings and breached its banking covenants as it struggled to get the business back on an even keel.