Almost unsurprisingly F&P is struggling in the current environment. Given that we are experiencing a global recession there was always going to be a huge fall off in demand for appliance products (something that hasn’t really happened in New Zealand yet interestingly).
Now, if F&P is still in a position where it will be profitable in the medium term, but drastic conditions in the credit market prevent F&P gaining any finance, I could accept the government loaning money to F&P temporarily at a high rate of interest. Bailing out F&P should not be an option – after all, what is growth promoting about forcing all of society to cover businesses mistakes?
As far as I can tell they are in trouble as their debt was denominated in foreign currency and the value of the NZ dollar collapsed. Now excuse me if I’m wrong – but isn’t this just hedging on their part. A few months ago they were complaining that the dollar was too strong and was reducing the profitability of their manufacturing. Now that the dollar is weak (improving the return on what they make) they have lost out on their debt. By denominating their debt in foreign currency they were hedging their losses stemming from a high dollar – why should we be bailing them out when the tide turns?