Shares in Taylor Wimpey halved yesterday after it failed to secure a £500m emergency rescue package from investors, fuelling fears it could breach its loan covenants and causing experts to question the company's long-term future.
The beleaguered housebuilder released a trading update, which admitted defeat in its attempt to secure cash to repair its balance sheet from existing investors and outside shareholders. The statement said: "In light of current market conditions we have not been able to come to a satisfactory conclusion."
Shares in Taylor Wimpey plunged more than 50 per cent on the news, before ending the day 35p down from the previous night's close of 60p. The value is 93 per cent lower than its peak of 518p only 15 months ago. The news dragged on its peers, with Redrow and Barratt Developments slumping yesterday.
Simon Brown, an analyst at Landsbanki, said: "It is now a question of survival for the company and there may be some brinkmanship going on between the management and its owners but the bottom line is this remains one of, if not the weakest player in the market."
News had emerged over the weekend that the group was in talks to raise emergency funds with a number of investors including Toscafund Asset Management, which holds a 10 per cent stake, Legal & General and Standard Life, as well as new investors such as hedge fund Och-Ziff.
Taylor Wimpey chief executive, Pete Redfern, said there had been "strong support" for the placing from existing shareholders, but it had failed to attract new investors. He said that they pulled the placing as it didn't hit the minimum requirements. "It is not a vote of no confidence in the company, it is an expression of caution over the housing market," Mr Redfern added. The company has now shelved the plan for the time being but is evaluating its options.
Jeremy Withers Green, a managing director in Cazenove's research department, said: "The failure to raise fresh equity is a blow for both the group and the sector. Trading conditions have deteriorated at an alarming rate."
The failure to secure funding puts the company under pressure, as it has eight months to come up with extra capital or breach the first of its banking loan covenants. The group's debt levels stand at £1.7bn and the banks had agreed to revise the loan facility on condition of the equity raising.
Taylor Wimpey was at pains to stress it had not so far breached its banking covenants. "However, without an amendment to the terms of our banking facilities, in certain negative market scenarios we might breach one or more banking covenants at the first testing date in 2009." It remains in talks with its banks.
Barclays, HSBC, Lloyds and RBS have all provided debt to Taylor Wimpey in the past, but none would comment on the state of the company's loan facility yesterday.
The trading update provided a bleak view of the housing sector, with the spring selling season "severely impaired" by lower weekly sales and lower average prices than in recent years.
It cancelled its interim dividend and announced that the chief finance director, Peter Johnson, was to leave at the end of the year. The group also admitted the value of its land assets had fallen by £550m.
Taylor Wimpey is attempting to cut costs and is to close 13 of its 39 regional offices following a review of its businesses launched in April, at a cost of 900 jobs.
The UK housing market has been hit by disintegrating consumer confidence, a slump in mortgage approvals – down 65 per cent in May – and a steady drop in house prices. The company added that it does not expect a recovery in the UK housing market in the short term.
"The outlook is grim," one UBS analyst said. He added: "Possibilities are another round of discussions with the banks, placing at a later stage or turning to strategic investors."Reuse content