Confirmation from the UK’s largest housebuilder, Taylor Wimpey, that it is seeking to shore up its balance sheet will start a wave of refinancing across the sector, analysts warned yesterday.
The housing company said it expects to write down the value of its land bank by around £660m, and revealed it was in talks with major investors over an emergency share issue.
Sources suggest it is looking to raise £500m via a share placing, likely to be detailed in Wednesday’s trading update. Its rescue plan also includes a re negotiation of its banking covenants.
Taylor Wimpey blamed a “significant downturn” in the UK housing market for the situation.
“The Board is now moving proactively to put in place an appropriate financial structure that will withstand what we expect will be a sustained weak market in the UK,” it said.
“This flags the likelihood of widespread land write downs and that the banks are unwilling to waive covenants without some fairly serious commitment,” said Kaupthing bank analyst Kevin Cammack.
Chris Millington, analyst at Numis, agreed: “Inevitably there will be more. There are at least two to three companies in a similar category including Barratt Developments and Redrow.”
Shares in Taylor Wimpey, which have plunged almost 75 per cent over the past six months, ended flat at 62p yesterday.
Its fall has been in line with the rest of the sector which has been battered by the sharp property downturn.
Analysts’ Views: Have Taylor Wimpey shares become attractive?
Simon Brown (Landsbanki): We would remain very cautious over Taylor Wimpey but anticipate the dilution of the shares will be offset by the better security for investors dependent on the terms of the placing. The write down will rebuild the profit margins and offer short-term tax breaks in the UK and Spain.
Kevin Cammack (Kaupthing): We have got to await further details of the refinancing. But on balance it is positive to the whole sector in that it shows a refinancing of the industry is doable. Taylor Wimpey has the advantage of being a first mover if it can get it done. If you need the money then you don’t want to be last
Howard Wheeldon (BGC Partners): It depends on where the markets go from here. If they were less volatile we would be happy to take a positive view from here, but in markets as volatile as this it’s uncertain. We had expected it and it is good that Taylor Wimpey has made what is being seen as a bold move in very difficult times. Where one housebuilder goes the others are likely to follow.”