Barratt shares climb as it denies breach risk claims
Feb 19 2008 by Andrew Mernin, The Journal
BRITAIN’S biggest housebuilder Barratt Developments saw shares climb 24.5 points yesterday as it denied claims it is on the brink of breaching its banking covenants.
Reports over the weekend claimed the Newcastle-based firm is in danger of breaking contractual obligations with its banking partners unless it reduces its debt by £100m.
One report said the company’s debt was approaching £2bn and that the firm may need to raise funds through a rights issue.
However the housebuilder yesterday rubbished the speculation and said, as stated in a trading update issued last month, that the company’s debt currently stands at £1.7bn and it is in no danger of breaching banking covenants. A company spokesperson said: “We are operating our bank relationships well within their contracts and there is no concern in that area.” The firm also said it has no plans for a rights issue and played down reports that it plans to reduce land acquisitions to cut its debt burden.
Mark Hughes, managing director of analysts Panmure Gordon, said: “In our opinion we don’t think Barratt will breach its banking covenant as we think it has a few hundred million pounds’ headroom in terms of debt. We were a seller of the stock but we have turned into a holder because we think some stories were overdone. They own a lot of land and their destiny is in their own hands as long as they don’t buy too much land.”
Campbell Maclachlan, property analyst at Wise Speke in Newcastle, said: “It seems unlikely at this stage that Barratt will have to succumb to a rights issue. Despite borrowing heavily to fund the Wilson Bowden acquisition, there should be room to manoeuvre providing conditions in the housing and credit markets do not deteriorate substantially from here.”
With house sales in decline amid international financial turmoil, housebuilders have endured a stormy time since the start of the Northern Rock crisis last summer.
In the six months to the end of December, volumes at Barratt were down 15% on a like-for-like basis while the company began 2008 with an order book worth £1.26bn, 6% lower than the previous year. Last February the group confirmed its place as the country’s largest housebuilder with the £2.2bn acquisition of rival Wilson Bowden. In the last six months Barratt shares have fallen from above the 900p mark to below the 400p level and yesterday closed at 388.443p.
