By  on December 8, 2008

MILAN — IT Holding SpA may be one step closer to securing a white knight.

The Italian fashion group, which owns the Gianfranco Ferré, Malo and Exte brands and operates under license the Just Cavalli, Costume National C’N’C and Galliano labels, said Friday its board had given company chairman Tonino Perna “a wide mandate” to continue talks with Mensun Ltd., a company represented by Chinese businessman Billy Ngok. The discussions are on an exclusive basis until Dec. 31.

IT Holding did not explain the extent of the mandate, and a company spokesman declined to give details, although Italian newspapers speculated any deal could involve the sale of a majority stake in Ittierre, the fashion group’s clothing-making unit.

In September, IT Holding said it was in negotiations with an investor fronted by Ngok regarding the possible sale of a minority stake in PA Investments SA, IT Holding’s parent company, and possible commercial and production agreements in the Asian market.

Also Friday, IT Holding said its board had approved the resignation of company director Antonio Di Pasquale in order to appoint an executive director, who also will serve as chief executive officer.

IT Holding is under intense pressure due to the size of its debt and a string of poor results.

In November, the group forecast an 8 percent drop in full-year revenues and a lower profit margin, after a net loss of 10.1 million euros, or $15.4 million, in the first nine months of the year, compared with earnings of 6.6 million euros, or $8.9 million, in the same period in 2007.

Revenues through Sept. 30 fell 7 percent to 468 million euros, or $712.5 million, while earnings before interest, taxes and depreciation dropped 16 percent to 83.2 million euros, or $126.7 million.

Dollar figures were converted at average exchange rates for the periods to which they refer.

As of Sept. 30, following a reduction in working capital, IT Holding’s debt was 295.4 million euros, or $428 million, including a 185 million euro, or $233.4 million, bond, which expires in 2012.

In 2007, EBITDA reached 115.6 million euros, or $158.5 million, although Intesa Sanpaolo has estimated IT Holding’s net debt will exceed EBITDA by 4.7 times next year, well over the normal limit for luxury groups of 3 to 3.5 times. PA is laden with around 140 million euros, or $175.6 million, in debt.

Moody’s Investors Service and Standard & Poor’s downgraded IT Holding’s credit rating after the company failed to pay a 9.4 million euro, or $11.9 million, principal installment on its unrated bank loan due Oct. 20, which lender Intesa Sanpaolo SpA agreed to postpone until Dec. 22. The ratings agencies noted that the weakening market conditions could further undermine the Italian firm’s ability to service its debt and make interest payments.

Perna controls nearly 61 percent of IT Holding via PA and a further 1 percent via GTP Holding SpA, a separate holding company for PA.

IT Holding has lost more than three-quarters of its market value in the last 12 months, although its stock closed up 2 percent to 0.28 euros, or 35 cents, Friday.

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