Banks exit building sector

Published:  20 May, 2010

LONDON: Building companies have been forced to find alternative funding as banks are increasingly unwilling to lend to them while prospects for the sector look uncertain.

"Historically, building materials companies have relied on a significant amount of bank debt, but in the past couple of years they have realised that they need to diversify into other sources of funding," said Chris Spedding, a building materials specialist at Lloyds in an article in today's Financial times.

"Typically the most dramatic changes in debt profile have been among companies supplying building materials, which are often heavily dependent on borrowing, the newspaper said.

"HeidelbergCement, the parent of the UK's Hanson Cement, underwent perhaps the most radical shift in its debt profile as part of a wider refinancing. Analysts estimate that the group moved from being as much as 80% bank financed at the start of the downturn, to just 20% today.

"However, while building materials groups are most likely to look at alternative funding, other types of building companies are also considering tapping the bond markets."

David Thomas, finance director at Barratt Developments, the UK's largest volume house builder, said: "The kind of 5-7 year money that was available from banks before the downturn just isn't there any more, so inevitably the reliance on that kind of finance has had to come down."

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