Carphone founder David Ross fights to save his property business

Published 26th Dec 2009

David Ross is in eleventh-hour emergency talks to save his shopping centre business, The Times has learnt.

Mr Ross is trying to renew a loan from HBOS for Kandahar Group, his property vehicle. The value of the lossmaking company’s 16 shopping centre, office and restaurant sites has dropped sharply and it is in breach of its banking covenants.

Lloyds Banking Group, the owner of HBOS, has the power to wipe out Mr Ross’s holding by seizing control of the company or pushing it into administration.

Lloyds and Kandahar declined to comment.

Mr Ross co-founded Carphone Warehouse with Charles Dunstone, his schoolfriend, but resigned as a director last year after it emerged that he had pledged £157 million of Carphone shares as collateral for loans to prop up his property interests. He was cleared of any wrongdoing by the Financial Services Authority.

Kandahar has a December 31 year- end and must renew a £247 million credit facility by then. The loan is secured against its shopping centres.

PricewaterhouseCoopers, Kandahar’s auditor, posted a going-concern warning in September on the company’s accounts for 2008, noting that “directors are hopeful that a restructuring agreement could be reached by December 2009”.

With only three working days left before its year-end, apparently an agreement has yet to emerge.

Lloyds inherited HBOS’s multibillion-pound commercial property loan book when it took over the rival bank and it is beginning to run the rule over the mammoth portfolio of assets that it now owns after many of its borrowers failed to meet covenants.

Lloyds, like Royal Bank of Scotland, has adopted a tolerant approach so far to indebted property companies, provided that they are meeting interest repayments, to avoid taking writedowns on commercial property, which has fallen in value by 45 per cent over two years.

However, the bank is expected to consider selling off more assets as property values continue to rise. It has sold a number of prime property assets in recent months, including the Silverburn shopping centre in Glasgow, to capitalise on the recent partial recovery.

Kandahar’s collection of 16 retail properties in market towns includes the St Mary’s Place Shopping Centre, in Market Harborough, Maid Marion Way, in Nottingham, and Drake Circus, in Plymouth, as well as sites in Caterham, Cambridge, Droitwich and Bishop’s Stortford.

Although the proportion of empty shops in these town centres is below average, with the exception of Nottingham, according to the Local Data Company, the average value of this “secondary” type of asset has fallen.

The value of Kandahar’s assets was 134 per cent of its HBOS loan at the end of last year, against a maximum of 82.5 per cent, according to the lending rules. The value of its shopping centres had dropped from £250 million at the end of 2007 to £185 million at the end of 2008.

Source: ' Times '

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