Shares in Countrywide plummeted by as much as 80 per cent on Thursday after the estate agency group announced an emergency equity raising at a steep discount to its previous share price.
Countrywide, one of the UK’s largest estate agency chains, is struggling to avoid collapse under the burden of more than £200m of debt, while also grappling with a slow market for residential property and the threat of online rivals.
The company said it would raise a gross £111m through a firm placing of more than 1bn shares at 10p each, compared with a price of 50p at Wednesday’s close. It will also seek an additional £28.6m in a proposed placing and open offer.
The sale of the new shares will all but wipe out the value of existing stock, whose price had already dropped by 58 per cent since the start of the year.
By early afternoon on Thursday, shares in the group, which owns brands including Hamptons International, Bairstow Eves and Chappell & Matthews, were 69 per cent lower at 15.7p, having touched a low of 10p after markets opened.
Peter Long, Countrywide’s chairman, said: “This is a once-and-for-all step, underpinned by a credible recovery plan . . . A business like Countrywide with high operational and financial gearing is not a very good cocktail, we’ve been clear about that. But [with the equity raise] this is no longer a business under capital structure pressure.”
Mr Long said the placing had brought on board two new UK “blue-chip institutions”, which he declined to name, while the bulk of money had been raised from existing shareholders, who will need to approve the plan at a general meeting on August 28.
Oaktree, a private equity group that owns 30 per cent of Countrywide’s shares, has agreed to buy £24m of new stock but opted not to take up its full share of the placing, so its stake will be diluted to 19 per cent.
Countrywide is struggling under net debt of £212m, and failed to raise £250m when it attempted a high-yield bond issue earlier this year.
It said on Thursday it had been forced to agree new conditions on its loans for a second time, enabling it to borrow up to 5.25 times earnings. Meanwhile the group made a £206m loss for the six months to June, up from a £500,000 loss a year earlier.
Income was down 8.7 per cent to £303.6m, as house sales exchanged fell 19 per cent to 22,026.
The company now plans to implement a three-year recovery plan dubbed “back to basics”, though it must do so in a sluggish property market. It has reduced head office staff by 150, or about one-third, while seeking to build up branch staffing levels.
Mr Long said the group’s “problem child” had been the sales division, where “incorrectly ruining the business and losing industry expertise [had] resulted in a huge loss of market share, but under Paul’s leadership that will be built back”. He was referring to Paul Creffield, group operations director, who will join the board as group managing director with immediate effect.
Alison Platt resigned as chief executive in January after a profit warning caused a sharp drop in its shares. Ms Platt had joined from Bupa, the healthcare group, and pushed forward a series of acquisitions, especially of lettings businesses.
But this expansion took the group further into debt while leading to a struggle to integrate the acquired businesses, especially after a decision to combine the sales and lettings divisions.