Fisher & Paykel must pay down $235 million debt to avoid banks’ wrath

By Patrick Avenell

SYDNEY: Fisher & Paykel chairman Gary Paykel has told shareholders this morning that the appliance and whitegoods manufacturer must clear $235 million in debt by March 2010. Should Fisher & Paykel fail to achieve this goal, they could find themselves at the mercy of the banks.

“We have recently agreed a new debt structure with our banks, in spite of a difficult banking environment,” wrote Paykel to shareholders. “Under these new banking facilities, we are required to reduce Appliances’ debt over the coming 10 months by $235 million.”

In order to achieve this target, Paykel outlined a range of objectives, centred on both cost reduction and capital generation. Well-timed considering news of Fisher & Paykel’s financial constraints is the $46 million, 20 per cent investment from Haier Group Corporation.

“The directors are excited to have secured this partnership with such a strong global appliances player and are confident that Haier’s equity interest in the Company has enhanced the future prospects of the Company,” wrote Paykel.

Paykel explained the company’s current debt woes and need for external investment as a product of the economic climate. He also wrote ominously of the precarious position the group is in regarding its relationship with its banks.

“The Group’s earnings have been reduced by the current unprecedented global economic difficulties. As a result of the increase in debt and reduced earnings, we would not have complied with our bank covenants as at 31 March 2009 had we not received a waiver from our banks.”

Paykel made these revelations in a Chairman’s Letter to shareholders, which was included in a prospectus offering to existing shareholders. The application price for each new share is 41 cents, with expected minimum gross proceeds of just under $190 million. This money has been earmarked to pay down debt.

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