Housebuilders tap up shareholders
Two more housebuilders are turning to shareholders for extra cash to help cut their debts and take advantage of land buying opportunities at cheaper prices.
Barratt Developments and Redrow are collectively looking to raise almost £850 million as the property market begins to find its feet.
Barratt is looking to raise £545.5 million through a 1.3 for one rights issue priced at 100p a share – a 63% discount to Tuesday’s closing price.
The housebuilder added that it will also place 72.9 million shares at 240p to raise an additional £175 million.
Redrow is planning on tapping shareholders to boost its balance sheet by £156 million. Its 13 for 14 rights issue is priced at 105p a share – around 55% below Tuesday’s closing price of 233.5p.
Earlier this month it reported its worst ever set of annual results with sales plummeting 50% and losses hitting £140.8 million.
Barratt has also taken a heavy knock during the property market slump. Pre-tax losses hit £678.9 million for the year to the end of June – down substantially from the previous year’s £137.3 million profits.
Analysts have argued that the company would be in danger of breaching its covenants if it has to write down the value of its assets further.
However, recent messages from the sector suggest that the worst is past and that sales have started to stabilise.
Mark Clare, Barratt's chief executive, says: “In the second half we have been able to maintain price levels and increase our reservation rate, with these encouraging trends continuing through the summer into the autumn.
“The board has therefore decided it is now an appropriate time to substantially strengthen the company's balance sheet and reduce its debt levels.”
Barratt, which has net debt of around £1.3 billion, was expected to ask shareholders for £500 million next week when it announces its full-year results although its plans were brought forward when it learnt of Redrow’s fundraising intentions.
Redrow chairman Steve Morgan said the cash call will help the group return to its traditional focus on family housing. He says: “The proposed rights issue will strengthen Redrow's balance sheet and position Redrow for growth. We now need to enhance our ability to acquire land through selected acquisitions."
The fundraisings are the latest in a long line from housebuilders. In May, Taylor Wimpey raised £510 million, while smaller rivals Bovis, Berkeley Group and Bellway have strengthened their balance sheets by between £49 million and £60 million. Persimmon is the only large housebuilder not to have gone cap in hand to shareholders.
Meanwhile in the real estate sector, shopping centre owner Liberty International said it is selling up to 56.1 million new shares – around 10% of its current share capital – through a placing. This will allow it to carry out “tactical acquisitions” and resume investment in the group's regional shopping centres and central London assets.
Shares in Barratt were up more than 3% at 276.8p while those in Redrow climbed almost 4% to 242.5p.
A way a company can raise capital by creating new shares and invite existing shareholders in the company to buy these additional shares in proportion to their existing holding to avoid a dilution of value, which means keeping a proportionate ownership in the expanded company, so that (for example) a 10% stake before the rights issue remains a 10% stake after it. As an added incentive, the new shares are usually offered below the market price of the existing shares, which are normally a tradeable security (a type of short-dated warrant) and this allows shareholders who do not wish to purchase new shares to sell the rights to someone who does.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.