It comes as the New Zealand whiteware manufacturer shores up its finances with about $201 million of capital raising.
The deals are designed to pay down mounting debt accumulated by Appliances' relocation to offshore manufacturing facilities in low-wage economies during the past three years.
The company predicted yesterday debt levels would plummet from $459 million down to $153 million by the end of March next year.
On news of the capital raising and cornerstone investor stake, Appliances' shares rocketed by as much as 56% to $1.04, before settling at close at $1.03 - with 24 million shares traded, worth $24.2 million.
While Appliances gets access to the massive China market from the deal and much-needed cash to pay down debt, the trade-off situation allows mass producer Haier to pick up long-established Appliances' shares cheaply.
It gets two board seats, gives it access to research and development, new product lines and use of new low-economy manufacturing sites already set up by Appliances, ABN Amro Craigs broker Peter McIntyre said.
"Haier are the winners here.
They have come and saved the day, but in return got a large chunk of the pie," he said yesterday.
A key gain for Appliances will be its entering a niche market in China.
Mr McIntyre predicted Haier, with its two board directorships, would seek to "revamp" Appliances' board, which has come under scrutiny with increasing debt levels.
Forsyth Barr broker Suzanne Kinnaird said Appliances was "long overdue" gaining a cornerstone investor and the investment would "neutralise" financial risks at hand so Appliances could refocus on operating profit.
"Positives are access to [the] Chinese market and purchasing synergies.
The rights issue plus inventory reduction and property sales will get debt back to manageable levels over the next 10 months," she said.
The full-year result had exceeded market expectations in terms of how they have been able to stabilise the balance sheet by Haier coming on board, which was evident in the share price reaction being up 58% at $1.04 at one point yesterday, she said.
For Haier to attain its 20% stake - costing $81 million in total - it will take a share placement at $46 million, plus top share rights for $12 million and under the renounceable rights issue, open to all shareholders, is expected to take a further $23 million of shares, Mr McIntyre said.
Separately, the renounceable rights issue, on a 1:1 basis, could raise a further $143 million for Appliances, most of which would be used to pay debt.
Mr McIntyre said "This is a great outcome for Appliances.
They are expecting to pay down more than $300 million of debt during the next 12 months."
Forsyth Barr maintains a hold recommendation on the stock, while ABN Amro has a hold recommendation and a 64c 12-month price target.
Appliances released its full-year 2009 result yesterday, which drove home the cost of its global strategy to take manufacturing offshore.
Cuts included 430 jobs in Dunedin and the closure and $20 million sale of its 23-year-old Mosgiel plant.
Pre-abnormals after-tax profit was $38.3 million, but with one-off costs of $66 million associated with implementing its global strategy, plus other impairment losses associated with goodwill.
Appliances booked a $95.3 million loss yesterday compared to a $54.2 million profit at the corresponding time last year.
Chief executive John Bongard forecast a 23% increase in earnings before interest and tax in 2010, rising from $55.6 million to $68.3 million.
The offer closes on June 25 with allotments by July 1.
The brokers' disclosure papers are available on request.
Haier
- China's largest appliance manufacturer.
- Makes 35% of global whiteware.
- 60,000 employees worldwide.
- Access to 36,000 franchise outlets in China.
- 2008 sales of more than $NZ30 billion.
- Listed on Hong Kong and Shanghai exchanges.
- Other interests; banking, finance services, insurance, software, real estate.
- Has 16 industry parks worldwide.
- 20% Appliances stake cost up to $81 million.
