KEY POINTS:
United States appliance firm Whirlpool and Chinese appliance company Haier are being touted as possible candidates for taking a cornerstone investment in Fisher & Paykel Appliances but the company is staying silent over who it is talking to.
Whiteware maker Fisher & Paykel yesterday shocked the market with
an update which revealed plunging sales figures and a big rise in its debt ratio.
Its share price fell 35 per cent to 65c - the biggest one-day drop since the business was split in 2001 and a dramatic fall from its peak of $3.95.
Fisher & Paykel predicted its net profit would be between $25 million and $30 million for the year to March 31, down from a $65.5 million profit in the previous year.
After its current restructuring costs the company would only break even.
At the same time its debt levels had been pushed up by $122 million due to the drop in the New Zealand dollar.
The company said its debt at the end of last month was $512 million, a debt to debt-plus-equity ratio of 43 per cent - well above the company's normal target range of 25 to 35 per cent.
To improve its balance sheets the company said it would look at raising equity, including through the investment of a cornerstone stakeholder.
Fisher & Paykel vice-president of product planning, logistics and investor relations Paul Brockett said it was in talks with several parties but would not say how many or who.
Market commentator Arthur Lim said Whirlpool was the logical choice because it already had a close association with Fisher & Paykel.
"In the past the talk has always been around Whirlpool - they have got this close association ... and it is instantly what comes to mind."
But he said a potential Chinese investor could also not be ruled out.
"I think the Chinese are looking at opportunities out there. We have already seen it in Australia." Haier was one possibility. It distributes whiteware in New Zealand through distribution company Monaco.
Lim said a private-equity player was unlikely as most were more concerned about looking after their existing investments rather than making new investments. He expected a cornerstone investor to take around 30 to 40 per cent of the company in order to block any future takeover moves.
Forsyth Barr analyst Guy Hallwright said other appliance companies were the obvious choice as potential stakeholders but did not rule out a private-equity player.
Hallwright said the company had hoped to raise $150 million in debt through a capital notes issue last year and he expected the equity capital raising could be at similar level.
Fisher & Paykel also said it needed to inject a further $50 million into its finance company division in order to meet new Government legislation.
Hallwright said if this was added to the capital raising it would make it a large raising by NZ standards.
Fisher & Paykel Appliances chief executive John Bongard said he expected to announce further details of the equity raising within weeks.
The capital raised would be used to pay down debt.
Bongard said he expected the company's debt levels to drop by $230 million over the next nine months due to cost savings attributed to shifting its manufacturing overseas as well as significant falls in the cost of raw materials. "It's a real short-term debt issue."
Bongard said the firm's bankers remained supportive. He was positive about the company's future. "I don't think there is any doubt about the future of the company."
He said its new structure as well as potential new products would put it in a very good position once things picked up again.
RAISING FUNDS
* How does an equity capital raising work?
* Capital can be raised either through a rights issue or a private placement.
* A private placement involves a cornerstone investor buying into the company.
* A rights issue involves the issues of more shares or the right to buy more shares.
* These shares are usually offered to existing investors on a pro-rata basis.
* The price of the new shares on issue is usually less than the current share price of the company to entice investors to buy them.
* The downside of a capital raising is that not all existing shareholders may be able to afford to take part so their share in the company can get diluted.
* The advantage is the company gains new capital which enables it to keep operating and lower its debt levels.
