Feltex says it needs new capital as in breach of convenants

Feltex said it also planned asset sales. Picture / Greg Bowker

In yet another shock announcement, troubled carpet maker Feltex today said it needed new capital as it was in breach of its banking covenants.

Shortly after calling for a suspension of trading in its shares this morning, Feltex said its board was evaluating initiatives to raise new equity, and had received a proposal from a New Zealand company concerning a potential capital raising.

If implemented, the proposal would result in that company becoming a cornerstone shareholder, Feltex said.

Today, the weekly business newspaper National Business Review in a front page story headlined "Feltex on its knees and seeking fresh equity", said an emergency capital raising would heavily dilute existing shareholders' stakes and lead to a change of ownership.

It said bankers, led by ANZ National, were stitching together a last-minute rescue package for Feltex "amid fresh revelations the listed carpet market is in worse shape than it has portrayed to the market".

Feltex said in its statement today that the potential investor was undertaking a book-checking due diligence process.

"It is expected that this due diligence process could take up to three weeks.

"If the potential investor is satisfied with its due diligence, the issue price and terms of the proposed capital raising, and the shareholding level, (the deal) will then be subject to final negotiation between the parties."

The proposal would involve a share placement being made to the investor which would also underwrite an issue of new securities to other shareholders.

"Feltex is in breach of certain covenants in its bank facility and is in discussions with the bank regarding those breaches," the Feltex statement said.

"The company advises that it is not in monetary default under its facility agreements."

It said the bank had been kept informed of the developments with the potential investor.

Feltex also plans assets sales which together with the capital raising would help it reduce debt.

Shareholders would have to agree to the new plan. The company had begun a process of appointing an independent expert to provide advice to shareholders on the merits of any deal.

Feltex said it had requested the trading suspension "pending a further announcement from the company today commenting on the article that appeared in this morning's National Business Review".

NBR said Feltex was carrying higher debt than it had stated in a statement this month and its forecast of normalised earnings of $20-21m were not sustainable.

On June 7, Feltex issued a statement that appeared to give comfort to investors and sent its then share price up 5c, or 15 per cent.

It said it was working to cut debt and assured shareholders market conditions were improving.

Confidence in the company was shattered last year following a series of shock profit downgrades along with the departure of chief executive Sam McGill in acrimonious circumstances.

Many investors felt they had been duped into buying the stock at $1.70 in an Initial Public Offering in 2004 shortly before things turned to custard.

On April Fool's Day last year, the company warned of an $8m to $9m shortfall in its previously forecast $21m to $22m profit. It blamed an unexpected slowdown in Australian sales.

Investors were infuriated that warning came less than six weeks after the half-year profit when the company said it was on track to meet forecasts despite encountering challenging market conditions.

In October, the company axed 235 jobs, mostly in Australia, and this year it abandoned merger talks with Australian competitor Godfrey Hirst after Feltex suggested the apparent "white knight" investor was more interested in a reverse takeover.

The company employs over 1000 people on both sides of the Tasman, with plants in Feilding, Kakariki near Marton, Foxton, Dannevirke, Lower Hutt and Christchurch.

- NZPA