Berkeley Group co-founder Tony Pidgley said he is “saddened” over the speculation that its long-term joint venture partner Saad Investments is debt-laden and potentially financially unviable.
Privately-held investment company Saad – run by Saudi billionaire Maan al-Sanea – has revealed it is restructuring some $6 billion in debts after it ran into difficulties in early June. Questions are now being raised over the future relationship between the companies, including their five current JVs.
Mr Pidgley said: “Berkeley has been saddened that its long term joint venture partner, Saad Investments Company Limited, is subject to speculation over its financial position.
“We very much hope that Saad can resolve its difficulties and continue as our partner, while at the same time we are working with our advisers to ensure the value of Berkeley’s investment is secure.”
Reports from the Middle East suggest cracks have begun appearing in the balance sheets of some Gulf companies that took on high levels of debt to expand during the region’s oil-fuelled boom.
Last week, Saad – a long-term shareholder in Berkeley – sold a further 4.5 million shares in the firm, taking its stake from about 29 per cent in April to just 2.7 per cent.
Financial statements for the Berkeley Group – which has itself suffered a 30 per cent fall in revenues and close-to 40 per cent drop in pre-tax profit over the past year – show it has £18.7m employed in joint ventures with Saad, including £15.3 million of bank debt.
Berkeley has five joint ventures with the Saudi firm, only two of which have active sites – a residential development site of 300 units in Fleet, Hampshire, and a commercial site in Fulham, London, for which a residential consent is being pursued.
But the group said it “does not anticipate any financial loss or adverse impact on its business from these joint ventures”.
In an announcement to the stock exchange last week, Berkeley recorded profits of £120.4m for the year ending April 2009 – down from £194.3 million for the 12 months prior.
Its revenue also took a battering amid the worst economic climate since the depression, falling from £991.5 million in 2007/08 to £702.2 million in 2008/09.
The group admitted that the total value of sales reservations for the year were 52 per cent below its historic average.
But in an upbeat statement, the board said it was “pleased” with the results.
“Profits [reflected] the market conditions in the year, which have been as challenging as any in recent memory,” it said.
The group added: “This is an exciting time for Berkeley. We have in place a clear long-term strategy which will enable Berkeley to take advantage of the current market conditions to acquire new land at the right time in the cycle.
“With its financial strength, Berkeley can now selectively acquire the sites to which, using its development expertise, it can add most value.”
Berkeley’s land bank remains at more than 30,000 plots, equating to more than £2 billion of future gross margin.
At 30 April, Berkeley also had undrawn bank facilities of £800 million, which are available to the group until August 2011.
Following the release of its annual results, Berkeley revealed that group finance director Rob Perrins would soon take the helm of the company, succeeding Mr Pidgley – who co-founded the firm and has been managing director for more than three decades – as managing director.
Mr Pidgley – who famously called the last two market crashes – said the restructure was “a natural evolution” and would see the company “into the next generation”.