Breaching bond lays Feltex low

Feltex shares plummeted to a new low after the company said it had breached its banking covenants and securing new capital was vital to its future.

When trading resumed yesterday for the first time since Friday's warning, the stock fell as low as 17c before recovering to close at 24c - down 12c from last week's close at 36c a share.

The stock is now around one-seventh of the June 2004 float price of $1.70 a share.

Despite the share price fall and concerns about the company's performance, Feltex chief executive Peter Thomas remained unavailable for comment yesterday.

Feltex said on Friday that an unnamed investor wanted to take a cornerstone stake in the company - subject to due diligence - and a successful capital raising was fundamental to the future of the business.

First NZ Capital analyst Andrew Mortimer said the company needed to get its capital structure sorted out before the share price could perform.

Another analyst said the three weeks in which the potential investor conducts due diligence would be crucial for Feltex.

"The real risk for them is the investor having had a chance to look through their books just walks away," said the analyst.

Under the current proposal the potential investor would underwrite an issue of new securities to shareholders, with a placement made to the investor on the same terms.

Considering its level of debt, the company would be likely to raise about $30 million, said the analyst.

Depending on the final structure of any capital raising, a lower share price could increase the potential stake-holding of any new investor, he said.

Feltex was also in discussion with its bank - understood to be ANZ - regarding the breaching of certain covenants in its bank facility and about the potential new investor.

First NZ's Mortimer said it was unlikely the bank would stop supporting Feltex should the potential investor walk away.

"Arguably they're [the bank] in for a penny or a pound anyway so I'd expect them to probably continue supporting it [Feltex]," Mortimer said.

This month Feltex forecast full-year earnings before interest, tax, depreciation and amortisation - normalised by eliminating restructuring and one-off corporate costs - of between $20 million and $21 million.

This was seen by some as a sign that restructuring efforts were starting to pay off and Feltex's share price jumped by about 15 per cent.

Feltex said last week that these restructuring and corporate costs would total $22.7 million, meaning a trading profit this year was unlikely.