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Taylor Wimpey fails to reach funding agreement UPDATE
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(Recasts intro; adds CEO comments from conference call; analysts' reaction)
LONDON (Thomson Financial) - Taylor Wimpey Plc. dealt a huge blow to the UK housebuilding sector Wednesday after it revealed it had failed to agree terms for a 500 million pound refinancing package to shore up its battered balance sheet and warned the continuing tough trading conditions in the UK homes market would lead to a 'sharp deterioration' in net reservations and completions in 2008.
The group, which like others in the sector has been hit by the credit crunch and the restricted availability of new mortgage finance, especially for new home buyers, also said it would be passing the interim dividend payment for 2008.
In the stock market, the group's shares, which have fallen sharply over the past year, more than halved to trade 30-1/4 pence lower at 29-3/4 at 10.10 a.m., dragging other housebuilders lower. Barratt Developments Plc., which is also thought to be contemplating its own fundraising, fell 13 pence to 43-3/4, while there were falls for Redrow Plc. and Persimmon Plc., down 33 pence 51-1/2 pence to 99 and 240 pence respectively.
Stockbrokers Landsbanki said it was 'now a question of survival' for Taylor Wimpey. 'There may be some brinkmanship going on between the management and its owners, but the bottom line is that Taylor Wimpey remains one of, if not, the weakest players in this market,' the broker said in an investment note Wednesday morning.
Cazenove were also disappointed at the group's failure to secure fresh funding. 'This is a blow for both the group and the sector. Trading conditions have deteriorated at an alarming rate and we will be reviewing our profit and dividend estimates across the sector,' the broker said.
The group, which on Monday said it was seeking to raise additional finance through an equity placing with new and existing shareholders, said it had been unable to conclude a satisfactory transaction which would have helped cut its 1.7 billion pounds of debt.
Group chief executive Peter Redfern said that while existing shareholders had been supportive of a fundraising, it had been difficult to persuade new shareholders to subscribe for new equity, given the current volatility in financial markets over the past few days.
'Our existing shareholders were very supportive of the plan, but new investors have been more reluctant. We just did not get the required amount of backing or the amount of new money we were looking for,' he told reporters on a conference call Wednesday.
The group's major investors include Standard Life Plc., Legal & General Plc., Alliance Bernstein, Toscafund Asset Management, Barclays Plc., Scottish Widows and M&G Group. Private equity funds and other external investors, including hedge fund Och Ziff, were also understood to be involved in the fund-raising discussions.
Press reports suggested the group, created from the merger of Taylor Woodrow and George Wimpey last year, was looking to raise about 500 million pounds. Redfern confirmed this figure was 'not a million miles away' from the board's own thinking.
The failure to raise fresh equity financing has also put a question mark over the group's banking covenants, although Redfern stressed that even without the extra cash, the group would not breach any of agreements with its bankers. 'We remain in full compliance with our banking covenants. However, without an amendment to the terms of our banking facilities, we may breach one or more of our covenants at the first testing date in 2009,' he said.
'I'm still confident we will find a solution. There are a number of options to consider,' he said.
Asked if the board would consider a rights issue, Redfern said he would not rule out 'a different structure' for raising fresh equity. 'But that does not mean we a contemplating a rights issue,' he added.
He also refused to say whether the sale of its Spanish housebuilding operation, or the disposal of its commercial construction division, would be considered as a way or raising additional cash. 'These two operations are relatively small compared to the rest of the group,' he said.
The group also confirmed Wednesday that it would be writing down its land bank and work in progress by a total of 660 million pounds in 2008, with some 550 million of this in the UK. The North American assets will be written down by 70 million pounds, while the Spanish operations will take a 40 million pound hit.
Current trading has also taken a turn for the worse, with all the group's major markets experiencing a sharp downturn in activity. 'We expect the UK housing market to remain weak at least through 2008 and do not anticipate any recovery in the short-term,' said Redfern. In the UK, private housing reservations have fallen by 45 percent in the six months to end-June 2008, while total completions are down by a third on the same period last year.
To help cut costs, the group is closing 13 of its 39 regional offices and cutting about 900 staff.
The North American market also remains weak, with sales down by about 13 percent in the first six months. The board does not expect any recovery here until 2009 at the earliest.
The group also confirmed its finance director Peter Johnson would be stepping down from the board and leaving the company at the end of 2008, although Redfern insisted this had 'nothing to do' with the failure of the capital raising exercise.
Johnson, who joined the Taylor Woodrow board in 2002, earned a total of 807,000 pounds in 2007, which included a 282,000 pounds bonus, according to the last set of accounts. His base salary for 2008 was increased to 423,000 pounds from January 1, 2008, and he has a one-year rolling contract with the company. Redfern said negotiations over his exit package were still ongoing, but were not likely to amount to a 'big deal' payoff.
tf.TFN-Europe_newsdesk@thomsonreuters.com
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