Taylor Wimpey unable to raise cash

LONDON (Reuters) - Taylor Wimpey (TW.L) failed to raise the 500 million pounds it said it needed just two days ago, erasing half its market value and forcing its finance director's resignation.

The company needs the money for lenders to agree to ease the terms of its financing and avert the risk of breaching bank covenants next year and analysts speculated it might now consider selling assets to stay afloat.

"We seem to be in a vicious circle of doom and gloom," said Simon Surtees, a fund manager at Gartmore Investment Management. "It's been taken by the market effectively as a failed rights issue."

Warning of a "significant downturn" as sales and prices fall in housing markets in the UK, United States and Spain, Taylor Wimpey said the plea for extra capital it launched on Monday had been rejected by new investors.

Taylor Wimpey, formed through a takeover just a year ago, joins a growing list of companies ensnared in a sagging housing market where demand for new mortgages is at a record low.

Shares in Taylor Wimpey (TW.L) were down 32-1/2 pence or 54 percent at 27-1/2p by 1:22 p.m., off a low of 25p. The stock has plummeted around 85 percent this year.

Other housebuilders were also hit hard, with Barratt Developments (BDEV.L) down 29.5 percent, Persimmon (PSN.L) off 18.6 percent and Bovis Homes (BVS.L) 8.6 percent lower.

Bonds of Taylor Wimpey dropped sharply, traders said. Its 2019 sterling bonds dropped to be bid at 40 percent of face value from mid-to-high 50s a day earlier, traders said, though the bonds were illiquid.

Taylor Woodrow, which is burdened by a 1.7 billion pound debt load -- among the biggest in the sector -- said it does not expect a recovery in the UK housing market in the short term and does not see any material U.S. recovery until at least 2009.

In a trading update for the first half, the company said housing reservations had declined sharply since its update in April, with UK housing reservations down 45 percent year-on-year and both its order book and home completions down by a third.

CEO STILL CONFIDENT

Taylor Wimpey Chief Executive Pete Redfern said he was confident of raising capital in the near future but acknowledged it was difficult due to market conditions.

The capital would help secure renewed terms with lenders which the company has warned it needs to avoid breaching banking covenants in early 2009.

"We have got a significant period of time to complete the (fund) raising, we don't see covenant breaches or cash shortages during 2008," he told reporters in a conference call. "And we don't rule out any funding options."

One lender to the group said he had not heard that Taylor Wimpey was looking for a refinancing, saying that it probably needed some short-term money now as a major refinancing looked extremely difficult.

"I would not be happy to refinance a house builder today at any price," a second lender to Taylor Wimpey said.

The housebuilder said on Monday it was meeting existing and potential investors about raising fresh equity capital and Redfern confirmed on Wednesday the company was looking to raise around 500 million pounds.

Analysts have been warning that housebuilders, struggling after the global credit crunch ended a decade-long UK housing boom, are set for a round of refinancings as the market slows.

Options include rights issues, which are seen as risky following mortgage lender Bradford & Bingley's BB.L struggle to pull one off since May.

Builders might also turn to cash injections by strategic investors such as pension funds or debt-for-equity swaps.

UNDER PRESSURE

Taylor Wimpey is being squeezed by the weight of its debt, sharp drops in house sales and imminent asset writedowns.

"While we do not believe that it is in banks' interests not to support Taylor Wimpey and it still has time on its side, the uncertainty caused by Taylor Wimpey's inability to deliver a solution at this time will weigh heavily on sentiment," RBS credit analyst Michael Cox said.

Confidence was further hit as Taylor Wimpey cut its interim dividend and announced Finance Director Peter Johnson would leave.

"The failure to raise fresh equity is a blow for both the group and the sector," Cazenove analysts said in a note.

"Trading conditions have deteriorated at an alarming rate and we will be reviewing our profit and dividend estimates across the sector."

On Monday, Taylor Wimpey had said it expected a 660 million pound writedown in the value of its assets, a move that analysts expect other housebuilders to follow.

"It is now a question of survival for the company and there may be some brinkmanship going on between the management and its owners, but the bottom line is this remains one of if not the weakest player in this market," Landsbanki analyst Simon Brown said in a note.

"Our concerns over the net debt at Taylor Wimpey have been borne out with the 1.9 billion pounds at the end of Q1 only down to 1.7 billion at the half year, far higher than anticipated."

(Additional reporting by Mike Elliott, Natalie Harrison and Tessa Walsh; Editing by David Holmes and Jason Neely)