Engineering firm VT Group has put its attempted takeover of Mouchel Group on ice until there is greater clarity surrounding the latter’s debt position, sources close to the bid have revealed

The sources say VT is waiting for clarification over whether Mouchel will stay within its £190m credit facility. Any move by VT would follow its offer of 260p per share in December, which valued the company at £276m. Mouchel rebuffed that, allegedly seeking 300p.

There has been no movement since then and several analysts this week described the deal as having gone “unusually quiet”.

Mouchel’s overall borrowing at the end of its financial year on 31 July 2009 was £180.7m, which left it with headroom of £9.3m. At a trading update on 11 December the company said borrowing would be above the figure at its half-year on 31 January, owing to weak trading in Dubai, where it has a joint venture with troubled developer Nakheel. In March it will come under further pressure when the facility falls to £180m.

According to two sources close to VT, which has an estimated war chest of £350m, the firm is hoping its bargaining position will strengthen if Mouchel comes under financial pressure.

VT will make Mouchel sweat until it is ready to move

Source close to VT

One said: “VT is well aware of Mouchel’s financial position and will make it sweat until it is ready to move.”

A second source close to the bid team added: “If there is trouble on the debt facility, shareholders would not be impressed and it would heap pressure on the management to sell to VT.”

It is also understood that Mouchel faces a half-year banking covenant test at the end of January. Its agreement with lenders, which include Lloyds, RBS and Barclays, states that net debt must be no greater than three times its profit level.

Mouchel and VT Group both declined to comment.