Banks Are Still Funding Erinaceous

Property services firm Erinaceous said banks have thrown it a funding lifeline, but warned shareholders are likely to be left empty-handed. The Croydon-based firm has been struggling with "unsustainable" debts of more than £200 million after rapid growth, although it said plans to achieve "a solvent financial solution" are at an advanced stage.

But the company added that it is "highly unlikely" that existing shares will retain any value, whether or not the plans succeeded.Banks are likely to own the vast majority of the group following a debt-for-equity swap, diluting investors' current holdings.

The company is also considering the sale of its property insurance division, a profitable business which has been less affected by woes elsewhere in the business.

Trading has also suffered as the integration of its acquisitions took longer than expected, while its main commercial and residential property businesses are exposed to slowing markets.

Last September the firm admitted that it had breached some of its banking covenants and its shares slid from a high of nearly 400p to less than 2p, valuing the business at just £1.7 million.

In the first half of 2007, the group swung to a £3.9 million loss, compared to a £12 million pre-tax profit the previous year. It has yet to post full-year figures.

The group's previous management team paid the price for the slump, stepping down last November. Chairman Nigel Turnbull resigned last month.