Non-compliant Octavia enters discussions about joining 50,000-home Abri as part of plan to improve governance
Abri has entered discussions about a possible deal to takeover troubled Octavia.
Octavia, which owns 5,000 homes, is currently non-compliant with the Regulator of Social Housing’s governance and financial viability standard because of its poor financial planning and ‘unrealistic budgets’.
RSH in September gave Octavia a ‘G3’ and ‘V3’ rating for governance and viability respectively, meaning it must improve.
As part of its plan agreed with RSH to improve its governance and strengthen its finances, it hired Savills to carry out a selection process for a potential merger partner and 50,000-home Abri has been chosen.
The exact form of merger or partnership has yet to be decided and the associations have not yet agreed to an outline business case.
A spokesperson for Octavia said the talks have been announced at an early stage “in the interests of transparency, to avoid speculation, and to provide reassurance about Octavia’s long-term future.”
Wayne Morris, chair of Abri, said a partnership between the two organisations “offers a potentially strong strategic fit”, given the group’s adjoining geographies.
Gary Orr, chief executive of Abri, said Octavia “offers potential synergy” within its regional operating model. The talks come just weeks after Abri completed a merger deal with 10,000 home Silva.
Stephen Jack, chair of Octavia said: The board believes that forging the right partnership is in the best long-term interests of Octavia as it will make it stronger financially, enable it to invest more in its customer and community offer, and protect the long-term provision of its 5,000 social and affordable homes in London for both current and future tenants.”
Abri and Octavia have also agreed to collaborate immediately in a number of key business areas to increase the latter’s capacity.
In Octavia’s regulatory judgement in September, RSH said the London-based provider had “significantly underperformed against its budget in 2022/23’ and has had to implement savings as a result, in addition to negotiating covenant wavers with lenders.
RSH said Octavia “had not adequately considered the financial implications when taking on new liabilities or ensured appropriate monitoring of the risk”. The regulator said Octavia’s financial position is “weak”.
It said the association’s business plans since 2020 have been built on an assumption of savings between 2020 and 2025, but progress on achieving these has been slow.