Capital & Regional (C&R), one of Britain’s largest commercial property companies, suffered a brutal share sell-off yesterday amid concerns that its flagship fund had breached its banking covenants.

After the market closed the company acknowledged the “market concern around the capital structure of the Mall Fund”.

The firm has just over £600 million of debt on its balance sheet. Including debt also held by the three funds C&R part owns and manages, the company is directly responsible for a total of £1.3 billion of borrowings.

A year ago C&R shares were worth nearly £17, giving it a £1.2 billion market value. Yesterday the shares slid 15 per cent, down 56½p to 376¾p, giving it a market value of £266 million.

The company said that it was examining options “including, but not limited to, realisation of assets, which will ensure that the Mall remains within the agreed covenants”.

C&R, which manages £6 billion of buildings from shopping centres to the Xscape leisure centre in Milton Keynes, told investors last month that it was in talks to sell about £300 million of properties from its Mall fund to help it to stay within banking covenants, but company sources yesterday confirmed that no sale has been agreed.

Martin Barber, the company’s founder and former chief executive, was ousted from the board last month, a year before his scheduled retirement. Tom Chandos, C&R’s chairman, replaced him with Hugh Scott-Barrett, the former finance director at ABN Amro.

Other executive directors include PY Gerbeau, the former managing director of the Millennium Dome, who is in charge of C&R’s X-Leisure fund.

The Mall fund, in which C&R has a 24.2 per cent stake, is supposed to keep within a 60 per cent loan-to-value (LTV) borrowing covenant for a £300 million facility taken out with Royal Bank of Scotland (RBS).

C&R said yesterday that at the end of March, the RBS facility LTV test stood at 58.5 per cent.

William Sunnucks, C&R’s finance director, was on holiday in the South of France yesterday. He is due to return next week.

Property companies have on average lost about one half of their value over the past year as the credit squeeze has undermined the investor market and worries over the economy have hit occupier demand for renting new space.

C&R has been hit far harder than most quoted property companies because of its twofold leverage. It has borrowings, and so do the funds it co-owns and manages. The company has also invested in relatively old inner city shopping centres and retail parks where values and rents have fallen more steeply than other areas of the property market.

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