Taylor Wimpey: need for £1.2bn pension injection scares off buyers

A massive pensions liability at beleaguered housebuilder Taylor Wimpey is scaring off potential buyers, according to a story in the Observer.

Rumours suggested a private equity firm and sovereign wealth funds had been mulling over an offer for the UK's biggest builder, scenting an opportunity as Taylor Wimpey's shares have slid by 80% in less than a year.

That value loss has been the result of concerns that the group’s debt burden can be sustained in a depressed housing market.

The Observer says: “Taylor's pension liability is also said to be a big factor in preventing shareholders from agreeing a £500m emergency bail-out via a private share placement with institutional investors.

“Taylor says that £1.2bn is the most extreme estimate of what a potential buyer might be forced to pay into its pension fund.”

Fitch Ratings cut the housebuilder's credit rating last week, commenting that it might reduce it still further, on the grounds that the company faces talks with creditors to avoid breaching borrowing agreements.

That is a result of the company's failure to raise equity to secure new financial covenants.

The Observer noted that earlier this month, Taylor Wimpey said it might breach banking covenants next year if it failed to raise the £500m needed to persuade lenders to revise them.