Hartstone sells French arm to Courtaulds for pounds 45m: Sale proceeds will relieve firm's central problem of debt

HARTSTONE, the struggling leathergoods firm, took its first significant step towards financial rehabilitation yesterday with the sale of a French subsidiary to Courtaulds Textiles for pounds 45m.

Proceeds will relieve Hartstone's debt burden, which has been its central problem. Borrowing will come down from pounds 95m to pounds 53m and the ratio of debt to assets will fall from more than 200 per cent to 120 per cent.

Courtaulds has bought Cogitex, which makes ladies' tights. It has also bought Hartstone's UK hosiery business, which owns the Bear Brand name. Hartstone will receive pounds 37.4m in cash. Another pounds 8m will be paid in instalments over the next four years.

The disposal allows Hartstone to secure support from its creditors beyond 15 February, when the current arrangements are scheduled to end.

Hartstone also revealed plans to raise pounds 25m in a rights issue. This will reduce gearing to 50 per cent. Shaun Dowling, chairman, said Hartstone needed to call on shareholders to placate creditors further.

The rights will be held before 31 July, and coincide with publication of results for the year ending 31 March.

Most of the senior management at Hartstone has been replaced since the company fell from grace last year. Stephen Barker, the former chairman, departed in May with a claim for pounds 400,000 in compensation for loss of office.

Mr Barker's compensation package has not been paid. He is negotiating with Hartstone about the terms attached to settlement of the claim.

The document prepared for shareholders also reveals that a personal financial commitment by Mr Dowling saved Hartstone from almost certain collapse. At a crucial meeting with bankers last July, when the company was at its most vulnerable, Mr Dowling pledged pounds 50,000 of his own money to break a deadlock among lenders. If the stalemate had been left unresolved the company would have failed.

After the disposal of Cogitex most of Hartstone's business will be in leather, with about two-thirds of sales coming from the US.

Shares fell 2p to 68p. The stock has more than doubled in value since early December but is still well below the 250p achieved before news of the difficulties emerged. Courtaulds shares rose 19p to 555p.