Barratt tries to calm fears about land writedowns

Listen to this article


Barratt Developments’ chief executive has attempted to calm investor fears about the future of the struggling housebuilder with an unexpected announcement to the stock exchange.

Mark Clare, in what he admitted was an unusual step, said the company’s level of building activity, debt and anticipated land writedowns had not changed since an update to the market last month.

“We’re dealing in a very unusual environment right now, and wanted to nip any speculation in the bud,” he told the Financial Times. “Of course we are within banking covenants at the moment, and we do not envisage breaking them at the year end [to June].”

The statement aimed to reassure on potential land writedowns, which as well as re-aligning the balance sheet to reflect the lower value of its property could breach banking covenants.

Barratt shares fell another 42 per cent at one point on Wednesday, although the statement stemmed some of the decline and they closed down 21 per cent at 72½p. This followed a 35 per cent slide earlier this week.

Taylor Wimpey and Redrow, which at one point fell more than 30 per cent, closed down 19 per cent.

But analysts agreed the statement would do little to shift the bearish sentiment that has wiped out 94 per cent of Barratt’s market value since last May.

“It doesn’t change anything,” said John Messenger of ABN Amro. “The statement just doesn’t address investor concerns that are driving the share price. Will their auditors sign off on accounts without triggering a breach of banking covenants next month?”

Rumours also surrounded the role of hedge funds in the housebuilding rout, with large swathes of companies’ equity on loan to short-sellers.

One analyst, though, said the pressure was likely to ease as image-conscious hedge funds would not want to be seen to have damaged a household name for fear of attracting political scrutiny.

The government has resisted pressure to intervene in the struggling housebuilding sector, insisting yesterday that conditions remained for a “healthy industry in the longer term”.

Mr Clare confirmed market rumours that the agreement to refinance an £800m tranche of debt for two years – whose “in principle agreement” last month had soothed investors – had not been signed, although “it isn’t due until the end of June and progress is being made”. “Our debt is manageable, it is clearly very tight and there’s a lot of uncertainty in the markets. There is currently acute focus on delivering cash. We have to get through this year end,” he said.

Additional reporting by Jim Pickard

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from and redistribute by email or post to the web.