£200m hole for Lloyds as Scottish developer goes under

Edinburgh-based Kilmartin, which also has offices in London and Sheffield and owns industrial and retail sites across the UK, has joint ventures with firms including British Waterways.

HBOS bought a 50% equity stake in the company in June 2007 for £37m and loaned the company around £500m. At that time, Kilmartin, founded in 1996, had just reported 2006 pre-tax profits of £9m.

However, Kilmartin's results for 2008 showed a pre-tax loss of £46.7m. It now has a current portfolio with a value of £300m, leaving LBG facing a £200m loss on the loans if the assets are sold.

Iain Wotherspoon, chairman of Kilmartin Property Group, called in administrators after Kilmartin was unable to work out a deal with LBG or find new lenders. Another
subsidiary owned by Wotherspoon, Annfield Estates, also went into administration after reporting a £10.3m pre-tax loss and a deficit of £13.9m.

Lloyds and Kilmartin declined to comment.

Bruce Cartwright and Graham Frost of PricewaterhouseCoopers were appointed as joint receivers or administrators to Kilmartin Holdings, Kilmartin Property Group and
Annfield Estates.

Frost said that following the well-documented slowdown in the property market, the directors re-evaluated their longer-term strategy, including a potential refinancing of the group.

He added: "Our immediate priority will be to review the existing position, explore options and to develop an effective strategy for the businesses. During this process, we will work with all stakeholders and employees."

Andrew Montlake, communications director at Coreco Group, said the collapse was an example of the problems in the property market, adding that he expected more issues to emerge in the coming months.

He added: "It is not specifically a Lloyds or HBOS problem. There are a lot of lenders
who have issues with developers, a lot of whom are now struggling after posting positive results in the boom."

Ian Gray, senior mortgage manager at Large Mortgage Loans, added that this may affect the decisions of lenders to loan money.

He added: "The result of companies going into administration will be that lending conditions will tighten even more. Banks will be more reluctant to lend which will slow a recovery."