Wellington, New Zealand The prospect of Talley's Fisheries as the new cornerstone shareholder for Feltex has eased fears the troubled carpet maker could be heading for receivership, according to Stuff.co.nz.
It has also raised the possibility that money from the wealthy Spencer family may become part of the rescue package.
At first sight, a fishing company and significant food processor seems an unlikely white knight for a carpet manufacturer.
But the role of Talley's in rescuing failing and flailing meat company Affco Holdings has some analysts previously despairing for Feltex's future saying Talley's is a "credible rescue partner".
"Sure, it's a long way from agriculture-based industries and food processing to the carpet business, but the background of Talley's does offer hope," one analyst said.
Talley's bought into Affco five years ago after the meat company suffered several crises and capital transfusions.
It partly underwrote one Affco rights issue in late 2001, and a second issue the next year that injected $27.1m into Affco.
The company has since recovered, and Talley's achieved majority control last month.
Peter Spencer's investment interests have a more than 20% holding, which he has increased along with Talley's over the past five years.
The analyst said there were parallels with Feltex's situation that went beyond issues of razor-thin margins and critically low equity.
Feltex, which is forecasting a $20m-$21m pretax profit this year, has total debt of $129m.
That has put Feltex in breach of banking covenants and, while not naming its possible new investor, said it was investigating a possible rights issue "fundamental to its future".
The analyst said banking covenants would require Feltex to reduce its debt to $65.1m, leaving the company to raise $67.5m to satisfy its bankers.
That could require the placement of 200 million shares to the investor at 10c a share, and a pro-rata 1:1 rights issue, which together would raise $55.2m.
The balance of debt reduction -$12.3m - could come from asset sales flagged by the company.
The analyst said that if existing shareholders took up their rights issue, the new cornerstone investor could gain a 57% control of the company.
The effect would be to dilute the value of existing shareholder scrip by half. That situation would be worse for those shareholders if they did not take up their rights to new shares.
Then the new investor could potentially end up with 78% of the company, with corresponding greater dilution of existing shares.
Even so, any announcement of a rights-issue rescue will see Feltex shares fall further.
In Affco's case, the share price fell from 27c to 12c after the rights issue was announced, has since climbed back to a 48c high, and last week was trading at just under 40c. Feltex shares closed at 21c on Friday.
The banks have given a three-week window for Feltex to get its finances in order.
An announcement from Feltex confirming the identity of the new partner is expected this week.
