Pubs go flat as economic gloom bites

By IAN LYALL FOR MAILONLINE
Updated:

The recession is catching up with the big pubs groups as it emerged that the bar chain owned by Robert Tchenguiz has broken its lending agreements.

The covenant breach on £250million of debt held by the entrepreneur's Globe chain of hostelries raises huge concerns over another industry struggler - the quoted Punch Taverns, run by Giles Thorley.

It also underlines the uphill battle faced by publicans as they reel from the effects of the recession, soaring taxes and competition from cheap supermarket booze.

The recession is catching up with big pub chains, though they are still able to sell ale on the cheap

The recession is catching up with big pub chains, though they are still able to sell ale on the cheap

The British Beer & Pub Association reckons a record 39 local watering holes are going out of business every week.

In total 20,000 jobs have disappeared since last autumn when the government raised its tax on beer, and a further 75,000 are under threat.

Sentiment in the sector was briefly lifted by a reasonably robust set of figures from JD Wetherspoon.

But chairman and founder Tim Martin took aim at Chancellor Alistair Darling's last tax grab, calling it 'unsustainable'.

He said duty hikes were costing the firm an extra £15million this year, on top of a £4million bill from legislation on new holiday entitlements for staff.

However, the success of its food offering and the ability to still sell ale for less than £1 a pint meant pretax profits rose 2 per cent to £30.8million in the six months to January 25. The shares rose 42¾p to 384p.

None of this masked the real worry in the sector - the gloom surrounding the 450-strong Globe chain. A spokesman for the group said a meeting would be held with bondholders on how to go forward.

'But this will have no effect on publicans or the day-to-day trading of the business,' he said.

However Nigel Parson of City broker Evolution is worried about the first covenant breach for a pub company: 'It will unsettle the market ... We remain most concerned about Punch.'

The market has been merciless in its treatment of Punch, the indebted publican, which has run up £4.5billion of borrowings to create a 8,400-strong estate of pubs.

Extremely worrying was the downgrade of two tranches of debt at Punch's spirit group to junk status.

The share price closed ½p higher at 36p. In the past year 94 per cent, or £1.5billion, has been wiped from the value of Punch.

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