Shares in Barratt plummeted by nearly 25 per cent yesterday as gloomy predictions cut a swath through housebuilder stocks.
Persimmon fell 9.6 per cent, Taylor Wimpey 15.6 per cent. But Barratt went into freefall, closing down 24.2 per cent at 91.5p, trading as low as 83.5p at points.
The company rejected speculation that it is on the brink of a rights issue, amid counter-rumours that banks are refusing to underwrite it. But investors are spooked that falling house prices, and the knock-on effect on land values, could see the group break banking covenants on its £1.7bn debt.
Barratt's big problem is its debt – a chunk of which dates from the £2.2bn purchase of Wilson Bowden in February last year. The group's low valuation is the market's early predictions of the impact of the stagnating property market. "Historically, land values fluctuate by around 2.5 times the rate of change in house prices," said Mark Hughes, an analyst at Panmure Gordon. "The current share price reflects the guess that the assets will halve in value."
Shareholders have three major concerns: that the financial results this month will involve a major writedown in its assets; that it will be forced to issue more shares to raise money; or that it will broker a debt/equity swap with its bankers. "All three would be significantly dilutive," he said.
But even the company's gearing, and this week's figures showing house sale volumes down to their lowest level in 30 years, does not fully explain the scale of Barratt's re-rating. "All the usual valuation techniques have been thrown out of the window and replaced with sentiment, fear and the weight of money from short hedge funds," Mr Hughes said. "At this rate, one of the largest housebuilders will be crushed by the market."