Costain to sell homes division

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COSTAIN, the heavily indebted construction and mining group, is to sell its loss-making housebuilding operation to a Welsh private building company for pounds 25m in a deal expected to be announced this week.

Redrow Group, based on Deeside in North Wales, has agreed to purchase Costain Homes after weeks of negotiations. The deal will make it one of the UK's 10 largest housebuilders and one of the biggest still in private hands.

The sale will cut Costain's debts, which stood at pounds 210m after the pounds 157m sale of its Australian mining interests in April, to less than pounds 200m, and ease some of the worries about the company's financial position.

Costain Homes built about 410 houses last year and has a land bank of more than 2,000 plots. However, it has been racking up losses for two years, and its results were hit last year by the decision to write off pounds 40.7m against the carrying value of its land bank.

By contrast Redrow, which specialises in upmarket homes in unfashionable parts of the UK, has shown some immunity to the recession. Last year, profits were pounds 10.2m on turnover of pounds 120m, though this was down from a peak of pounds 16m in the late 1980s. Profits of pounds 13m are expected this year.

The group is headed by Steve Morgan, a 40-year-old Welsh entrepreneur who built up the business from a small contruction company he started with a pounds 5,000 loan from his father in 1974. He owns 97 per cent of the shares in the company, which could be worth pounds 100m if floated on the stock market.