The crisis facing Britain's beleaguered housebuilders is set to come to a head this week,on news that Taylor Wimpeyhas turned to investors toraise up to £500m in emergency funds.
Britain's second largest housebuilder is today expected to confirm talks with investors to raise between £400m and £500m as it seeks to repair its under pressure balance sheet. The group could also update the market on its attempts to persuade its banks to relax their covenants on its £1.9bn loans.
The decision to raise capital comes after Taylor Wimpey, whose shares have fallen almost 90 per cent from their 518p peak in April last year, has continued to come under pressure from the weakening market conditions, falling value of assets and its heavy debts.
The group will reveal the state of current trading in an update to the market on Wednesday.
Taylor Wimpey held intense negotiations with existing shareholders and outside investors over the weekend, but hadfailed to sign off the deal by the end of yesterday.
A source close to the talkssaid last night: "The company is still in discussions with shareholders over this. There islikely to be a brief statement on Monday morning, with moredetails announced at the trading update."
As it became increasingly clear that Taylor Wimpey needed to act to repair its balance sheet, the group called in the investment banking advisers UBS and JP Morgan Cazenove. The banks reached out to investors to support the equity placing, with talks continuing for the better part of a week.
It is understood that the advisers approached Standard Life, Legal & General, Barclays, M&G, Toscafund Asset Management, and Alliance Bernstein, which hold a combined 25 per cent stake in Taylor Wimpey. They have also held talks with outside investors, including the US hedge fund giant Och Ziff.
Taylor Wimpey, which had rallied 7p on Friday to close at 62p on whispers of the equity injection, declined to comment yesterday.
This is the group's latestmove to try to stave off thedeteriorating conditions in the housing market. In the pastyear, it has implemented a strict cost-cutting plan, and restructured its UK operations, closing 13 offices and reducing headcount by 600. It also announced last year that it was to stop buying land.
Researchers at Credit Suisse last week issued the latest in a series of bearish notes from investment banks analysing the sector, which predicted that companies would be forced to raise equity, and banking covenants could be breached.
The analyst Harry Goad urged investors to avoid the UK housing sector, predicting price falls of 10 per cent over each of the next two years. "Despite the significant retrenchment in sector share prices, we believe that the industry faces considerable risks, which more than justify current share prices," he said.
The housebuilders have suffered badly in the wake ofthe credit crunch, with sales running 50 per cent lower than last year, falling house prices, and mortgage approvals continuing to plummet.
A knock-on effect of the house price declines is the fall in the value of land held by the housebuilders, estimated at 50 per cent by Mr Goad.
Taylor Wimpey and Barratt Developments have been the two worst hit in the sector, with analysts blaming higher levels of debt than their peers.
Barratt's shares spiralled down earlier this month, as rumours hit the market that it was in danger of breaching banking covenants on its £1.7bn debt and was set to launch a rights issue. The group will update the market later this month.
Last week, one member of the Bank of England's Monetary Policy Committee said the slowdown in the house-building sector was worse than the recession of the early 1990s,while a UBS report last month saw no prospect of a recovery until 2010.Reuse content