Taylor Wimpey US sale could wipe out debt

Taylor Wimpey is in the early stages of evaluating a number of approaches for its North American housebuilding division, which if sold could generate more than £500m and virtually eliminate the firm’s £660m debt.

The US housebuilding division has been suffering ever since the housing market collapse, which was caused by the sub-prime mortgage crisis. However, this division also includes the firm’s operations in Canada, which have been performing well.

Taylor Wimpey has taken significant write downs on the value of its US land, but the business could soon be jettisoned, enabling the group to focus on its core UK market. This is part of its medium-term strategy to become UK-focused.

While this sale could help reduce debt, not all analysts see it as positive. Robin Hardy, Peel Hunt analyst, said: “Losing this business would see around £70m [of earnings before interest and taxes] lost and the proceeds might only reduce the interest bill by around £15m. Also, the best business unit [Canada], the best recovery prospect [USA] and many years of tax free earnings would be given up.”

In its trading update this week, the firm said its debt pile had been reduced further than expected, to £660m. This was despite the costs of refinancing its debt and a one-off pension contribution of £183m.

One factor that is helping boost its cash levels is a continued squeeze on contractors. Costs for private housing have been reduced 10% during 2010, with about 40% of this coming from squeezing suppliers. More reductions are expected in 2011 with many suppliers absorbing the pain in order to guarantee future work.

Average selling prices increased by 7% during 2010 to £171,000, but the impact of this has “already come through the business”, according to Taylor Wimpey chief executive Pete Redfern.