View from City Road: Little leeway for Greycoat

IT TAKES an awfully acute vision to see any light at the end of Greycoat's tunnel. Like almost every property company, gearing and cash flow are the stuff of Greycoat's nightmares. The company will breach its banking covenants if its 152 per cent gearing (as defined by its bankers) reaches 166 per cent. Geoffrey Wilson, its chairman, may believe the floor has been reached with this year's 22 per cent fall in the value of its portfolio to pounds 609m, but there is clearly little leeway for further declines.

Similarly, while income is virtually capped - its properties are 90 per cent let and higher rents are a remote possibility - its costs are bound to rise, given the way its funding is arranged. Britannic House, BP's London headquarters, for example, is financed with a pounds 150m deep discounted bond whose interest will double in 1997.

Sales might help, but a note to yesterday's figures illustrated the problem: Greycoat's 40 per cent interest in a building in Finsbury Avenue in the City, in the accounts at pounds 42.5m, was sold after the balance sheet date for pounds 27.5m. The pounds 15m loss will have to be charged against profits next time.

Greycoat has breathing space. The next financing crunch will be a pounds 50m zero coupon bond due for redemption in 1995. But the decision to draw on pounds 4.6m of reserves to pay a final dividend of 2.9p, despite making losses of pounds 8.1m and seeing shareholders' funds more than halve to pounds 226.5m, is astonishing. Any company that believes in its future should be mustering every penny against the unforeseen - a view the stock market presumably shared as it marked the shares down from 38p to 31p.