Inchcape puts huge discount sticker on its call for cash

Car dealer Inchcape was today close to setting a record for a distressed rights issue, offering investors new shares at just 6p against last night's close of 503/4p.

In a bid to shore up its creaking finances and prevent it breaking its banking covenants, Inchcape is issuing nine times as many shares as are in existence. The nine-for-one issue at a discount of 88% is raising £232 million — about equal to its current, much-fallen market capitalisation — after more than £16 million or 6.66% of the fundraising was paid to the four City advisers underwriting the issue, Merrill Lynch, Dresdner Kleinwort, HSBC and RBS Hoare Govett.

The levels to which Inchcape has had to sink to gets its fundraising away puts the spotlight on arch-rival Pendragon, Britain's biggest motor dealer. Pendragon, which is behind the Statstone and Evans Halshaw forecourt brands, is also deeply troubled, heavily in debt and a month late with its annual financial results.

Inchcape, which sells Lexus, Mercedes-Benz and BMW cars, is raising the new money to pay down its £400 million of debt, some of which has been lent with the proviso that profits remain three times the size of the annual interest bill.

The company reported a 22% slump in new-car sales this year could have put it in breach of that covenant. Today it admitted that its profits for 2008 plunged 55% to £108 million.

Chief executive André Lacroix said the group had laid off 1200 staff in the UK and 800 at its operations in Europe and the Far East.

"There has been rapid industry deterioration and markets are very challenging," he added.