Jeremy Warner's Outlook: Barratt may seek debt-for-equity swap

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The Independent Online

Something has got to give soon at Barratt Developments. With the shares down another quarter yesterday, loss of confidence in Britain's biggest housebuilder has reached crisis proportions, and it is now incumbent on the board to give some sort of an update.

In the latest in a series of highly bearish broker notes, Dresdner Kleinwort says that even at these depressed levels, shareholders should cut their losses and sell. Nobody should consider buying until details of writedowns, gearing and any financial restructuring become clear.

Kleinwort reckons the necessary level of new funding may have risen to £1bn, much higher than hitherto suggested and beyond the reach now of any rescue rights issue. Even a small rights issue may have become impossible.

In these circumstances, a debt for equity swap of the type seen among technology and telecoms stocks during the last downturn looks ever more inevitable. The upshot would be crippling dilution for existing shareholders.

The consequences of the credit crunch are fast rippling out from the first in the line of fire – banks – into other sectors. Housebuilding and construction are next, with retailers surely not far behind. Even the mighty Tesco cannot claim to be entirely immune, with sales growth now slowing markedly. All this, and interest rate rises sill to come as inflation builds. The odds on outright recession are shortening fast.

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