Trafalgar House asks for another pounds 204m

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TRAFALGAR HOUSE, the Ritz hotels to engineering conglomerate, yesterday asked its shareholders for cash for the second time in two years when it launched a one-for-two rights issue to raise pounds 204.5m.

The well-flagged issue has been partially underwritten by a financial institution that, in November, granted Hongkong Land an option that could require it to buy 67 million Trafalgar House shares.

The unnamed institution is sub-underwriting 30 per cent of the offer, which, if none of the issue is taken up by shareholders, would leave it with 12.5 per cent of the group. The option price is believed to be at 85p, although this will be adjusted for the rights issue - priced at 60p. Trafalgar's shares fell 12p to 76.5p.

Hongkong Land is taking up its rights on the 20.1 per cent it already owns and exercise of the options would increase its stake to 27.2 per cent. It has said it wants to increase its holding to 29.9 per cent but intends to remain a minority shareholder. A second director, Charles Powell, has joined the Trafalgar board.

Trafalgar raised pounds 310m in July 1991, through a one-for-three issue at 190p, to buy Davy Corporation. The current issue is intended to cut debt, which has risen from pounds 352.6m last September to pounds 580.3m.

Allan Gormly, chief executive, said this was partly seasonal but the strengthening of the dollar had added pounds 60m to US borrowings. But he said that, without the rights issue, debt would have been between pounds 400m and pounds 450m at the year-end, at constant exchange rates, implying a cash outflow of up to pounds 100m.

When it announced its 1992 results, it said it hoped to be cash-neutral in the current year, but trading in its property and construction and engineering divisions has proved worse than expected.

The rights issue will cut debt to pounds 375.8m, or just over 60 per cent of net assets. Mr Gormly said he hoped the business would be cash- neutral in the year to December 1994.

Construction and engineering - where the group said in December margins should be maintained - is suffering margin pressure while some contracts that it had won or expected to gain have been cancelled or deferred.

Trafalgar said it intended to accelerate its withdrawal from commercial property in the US and its European resort developments, while developments in the UK would be delayed. It warned that it could have to provide up to pounds 100m against property in current-year figures, and a further pounds 20m for restructuring the group.

It is forecasting a 3.25p dividend for the full year, down from 6p last time.