Housebuilding crisis: Barratt defends financial position

More than 75m Barratt shares changed hands yesterday – seven times more than the daily average – as the housebuilder’s share price dived once again. At one point yesterday Barratt shares were trading 42% down on the previous day.

And this on the back of a 35% share price slide last week.

That downturn didn’t stem fears and this week the company has lost almost a further half of its value.

Barratt is now worth £250m, a mere trifle when you consider that it had a value of £3.9bn in May last year.

Mark Clare, Barratt’s chief executive, took to the bridge personally yesterday and attempted to calm investor fears about the group’s future with an unexpected announcement on the Stock Exchange. It was issued at 3.45pm yesterday afternoon.

The Financial Times got through to Clare for a word. He said the statement was to nip speculation in the bud. “Of course we are within banking covenants at the moment,” he said, “and we do not envisage breaking them at the year end [to June]”.

The share price recovered on the news, and reversed some of the day’s 42% loss in value, the price moving upwards to close only 21% down when the Stock Exchange fell silent at the end of the day.

Clare told the Daily Telegraph that he was in constant discussions with Barratt’s lenders ahead of its covenant test on June 30.

At that point Barratt’s loan : net value ratio must not exceed 85%.

It is going to be a close-run thing.

Analysts at Peel Hunt told the Telegraph that write-downs in the value of land of just a couple of percent would put the housebuilder in breath of those covenants.

Clare must be crossing his fingers that he can cross the bridge safely on 30 June as that would then give him some room to manoeuvre his ship – six months room in fact as Barratt’s next covenant test is scheduled for 31 December.

However, Clare has confirmed market rumours that the agreement to refinance an £800m tranche of debt for two years, the “in principle agreement” of which had soothed anxious investors a month ago, has not actually been signed as yet.

Clare told the FT: “It isn’t due until the end of June, Progress is being made”.

He insists that Barratt’s debt is manageable. “There is acute focus on delivering cash. We have to get through this year-end.”

So if you’re reading this and you’re a Barratt subcontractor or supplier you might find yourself playing a part in that “focus”.