McINERNEY Properties is in the final stages of a financial restructuring of the group which will involve a £5 million injection of new equity. "Conditional approval in principle" has been obtained from virtually all the parties, according to chairman Mr Roy Ferris.

Completion is expected in six to 12 weeks' time. It will involve a "very substantial dilution" in the ownership of the group by the existing shareholders.

Details of the package have not been announced as formal agreements have not yet been completed. However, it will be a major restructuring, necessary to repair a very damaged balance sheet with a net deficit of £8 million in its net worth.

A major Irish based institution is understood to have agreed to put up most of the £5 million in new equity. About £2.85 million of that will be used to pay off the secured loan stock held by Standard Life, Irish Life, the McInerney family and management, which would then convert into equity.

This block, together with the new investors, would own the lion's share - between 60 and 80 per cent - of the enlarged equity. The remainder would be owned by financial creditors and the existing shareholders whose shares would be extinguished in return for new equity.

Industry sources say that about £3 million value has been put on the McInerney business which is well below the equity market capitalisation of more than £4 million. The value of the business would go up to around £8 million with the injection of £5 million.

However, in any restructuring, the existing shareholders would own only a small percentage of the enlarged group.

The deal will have to be approved by the existing shareholders. They will have little option but to agree as the board stressed in yesterday's statement that it "believes that the proposed arrangements will represent the only viable survival option for the group as a whole".

And McInerney's accounts, in the annual report to be circulated "shortly", will be qualified by the auditors, as in previous years, due to the uncertainties of its financial position.

The announcement of the proposed restructuring came with the group's 1995 results which showed a modest improvement in profits from £326,000 to £353,000 in 1995. Restructuring costs of £200,000, however, have cut the profit to £153,000. These costs are attributed to fees paid to financial advisers who are involved in the group's financial restructuring.

Group sales fell from £3 5.45 million to £33.74 million last year. This contraction was due to the leisure division.

Further underlying profit growth is anticipated for this year but the group is taking a cautious approach to house building, due to rising land prices and building costs. Nevertheless, managing director Mr Barry O'Connor said that, with continuing buoyancy in the market, this year should see further growth.

In 1995, the Irish operations enjoyed some growth. The number of house completions increased from 377 to 409.

The Irish commercial division, operated by Hillview Securities, is trading profitably.