Monday 19 February 2018

Builder needs to tread a lot more gingerly

McInerney's recent mini-exodus of executives and huge writedowns on land values, not to mention a €236m debt pile, give it cause for concern

FOUNDED by Thomas McInerney in Co Clare in 1909, house builder McInerney grew steadily over the following decades, taking in landmark projects of national significance -- including Shannon Airport's runway in 1949 and the science buildings at UCD in the early Fifties -- alongside its bread-and-butter work on buildings such as schools and local authority housing.

But amidst moves to restructure the company's debt and work through its massive land and housing overhangs beyond its 101st year, one can only imagine what McInerney would think now were he around to witness the very uncertain future of the company that bears his name.

Its beleaguered shareholders -- whose shares may be wiped out in any restructuring moves, and have already collapsed in value by 98 per cent from their peak in 2007 -- have seen two senior executives bail out relatively unscathed during the past year.

Former group operations director and Dublin GAA star Tommy Drumm salvaged an €843,000 payoff, a €240,000 pension contribution and €75,000 in consultancy fees from the McInerney wreckage last year while the rot was continuing to set in. While he retains a 1.5 per cent stake in the firm, he is now working in the gas industry in Australia.

Having presided over losses made on recent house sales and considerable writedowns on the firm's land values, managing director Barry O'Connor still received €500,000 in salary and pension contribution last year and has amassed more than €7m in salary and pension payments over the past decade.

Although he owned a 5 per cent stake as of the end of last year, he has now also abandoned ship and is attempting to salvage some further spoils by trying to buy one of the firm's Spanish operations, apartment developer Alanda Homes.

What institutional shareholders -- who owned about 60 per cent of McInerney shares as of the last annual report -- make of this is not known. Among them were Commerzbank, Merrill Lynch, JP Morgan, Credit Suisse and Standard Life. But Irish Life Investment Managers and Quinn Insurance, who had a stake of just under 8 per cent between them, are also nursing substantial losses.

While talks on restructuring the company's €236m debt pile -- of which about €125m is owed to UK banks -- are continuing, US$76bn (€60bn) private equity firm Oakhill Capital may be willing to come to its aid by investing between €30m and €40m, according to recent reports.

The remaining €111m is owed to a syndicate including Bank of Ireland and Anglo Irish Bank, meaning the spectre of Nama also looms large on the horizon. McInerney recently stated publicly that no Irish loans had been transferred to the National Asset Management Agency.

Goodbody analyst David O'Brien says it's difficult to see what value Oakhill might be able to realise from a sizeable investment in the firm. Although it has in the past had an interest in German properties and sold them at the peak of the market in 2007, little else is known about its property interests.

"There is still an undersupply of houses in the UK and a sizeable demand for them, so there is a possibility that Oakhill or the banks could realise a return of some kind in the long term. But the impact of UK public spending cuts sinks in. McInerney's land banks and houses in the UK -- where it owned 2,500 plots and had 1,100 houses being built at the end of 2009 -- are concentrated in the midlands and the north of England which will be the most harshly affected," he says.

"Any economic recovery in Britain tends to ripple out from London and the south east, so those areas will take longer to benefit," he adds.

Of its land and housing in Ireland, perhaps the company's biggest single weakness is that similarly most of it is in areas that are the hardest hit by the recession.

"There's a very stark contrast between McInerney and other housebuilders like Abbey or the Berkeley Group, which were much more prudent and resisted the temptation to borrow in order to grow. McInerney wasn't very risk averse and was still buying land in 2008, so you'd have to wonder about the management at the time," O'Brien concludes.

Sunday Independent

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