News Column

Still reeling from debt binge

August 19, 2014

By Ruth Sunderland, Daily Mail, London



Aug. 19--The consequences of the ill-fated financial engineering that was all the rage in those long-ago days before the crisis are still being felt on the stock market.

Punch Taverns, one of the biggest companies to fall victim, has been trying for two-and-a-half years to win agreement from its lenders and investors for proposals to restructure its monstrous pounds sterling 2.3bn debt.

Executive chairman Stephen Billingham believes he is now finally on course with a plan to cut debt by a quarter. For shareholders, who will control just 15pc of the restructured company, it involves more dilution than a dodgy watered-down pint, but Punch, probably rightly, says it is the least worst option and that without it, the company will go into default.

Whether or not Punch manages to gain the support of its shareholders, bondholders and lending banks, its plight is a testament to the follies of the financial engineers. Pubs, along with care homes and retirement flats, were not seen as businesses with responsibilities to customers, employees and society, but as 'property plays' that could be leveraged to the hilt.

Debts peaked at a phenomenal pounds sterling 4.5bn at Punch, leaving it hugely exposed to structural change in the pubs industry. Disaster struck when cash-conscious Britons started shunning the local boozer and supping cheap supermarket plonk on the sofa instead.

The smoking ban didn't help, and the company did not have the wherewithal to fight back by converting premises into the chic gastro pubs currently in vogue.

Mr Kipling-owner Premier Foods, which put together a pounds sterling 1.1bn reconstruction package earlier this year, is another company that was left groaning under a pile of debt and struggling with a pension deficit.

The whizz-kids who put together these highly-leveraged models have, of course, quit the scene long ago, leaving others to pick up the pieces and to reflect on the importance of abstaining from excess debt.

ARE we seeing a genuine slowdown in the housing market or just a pause for breath? The signals are mixed.

Asking prices have fallen sharply this month, particularly in London, according to Rightmove, and the Royal Institution of Chartered Surveyors points to a decline in demand for new homes, coupled with an increase in supply.

The banks are tightening up on affordability criteria, with Barclays the latest to move. Nationwide, the UK's second largest lender, reported a sharp 9pc fall in mortgage lending, which sounds ominous. On the other hand Bovis Homes more than doubled its first-half profits and said average prices rose 11pc. Given this welter of sometimes conflicting information, it is no wonder many are confused.

Some of the seeming anomalies disappear on closer examination: Bovis's business is skewed towards the south, and its results are to the end of June so do not encompass the July/August slowdown reported elsewhere.

One factor behind the sharp fall in lending at Nationwide is that it has been taking far more than its typical share of the market in the past two years, because its main competitors have been relatively inactive. The building society says its rivals are now coming back, and that it is happy to see its lending dropping back to more normal levels.

The underlying picture seems to be that there is a cooling off.

Stricter rules on lending, coupled with a fear of interest rate hikes and prices that have risen strongly are giving buyers pause for thought. There is an element of seasonality, in that the market is always duller in the summer when people are on holiday.

The Mortgage Market Review, which is slowing down applications, is also having an effect, though this is likely to lessen as lenders get used to the new procedures. In short, earlier this year, the market looked as if it might run away with itself, now it seems to be calming down a bit – which is exactly what Mark Carney and the Bank of England want to see.

The intensity of interest is more a reflection of our national obsession with property than anything of great substance in the latest flurry of surveys and results.

––––

The soaring price of hazelnuts has been worrying lovers of Nutella and Ferrero Rocher, whose maker, the Italian company Ferrero, is the world's biggest consumer, using up no less than a quarter of the world's entire supply.

The nuts have risen to their highest levels in 10 years following severe weather damage in Turkey, which meets 70pc of demand.

Analysts reckon Ferrero's recent purchase of leading Turkish company Oltan will give it the edge as confectioners scramble to buy up the depleted hoard of nuts.

As a consequence, suggestions of price hikes, panic buying and shortages may be unfounded. What a relief for the Ambassador.

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(c)2014 Daily Mail (London, )

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Source: Daily Mail (London, England)


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