MInerva warned this morning that it would breach its banking covenants in June 'if existing market conditions and property valuations do not improve'.

The London developer said it was 'actively' engaged with its lenders to agree amended terms, which would remove the restrictive covenants, which might be breached when they are next tested at 30 June.

The potential for a breach, revealed in half-year figures, led PricewaterhouseCoopers, which carried out an independent review report to Minerva, to cast doubt on the company's ability to continue. 'These disclosures regarding amendment of financial loan covenants, refinancing certain loans and achieving operating targets indicate a material uncertainty which may cast significant doubt on the group's ability to continue as a going concern,' said PricewaterhouseCoopers.

Minerva's level of gearing jumped from 46% to 67% in the second half of 2008.

In the six months Minerva's net asset value more than halved from 225p to 103p a share. The property portfolio lost 20.8% of its value after a revaluation by CB Richard Ellis.

The investment portfolio, which includes the two City of London office developments, the Walbrook and St Botolph's, and the Park Place shopping centre scheme in Croydon, dropped by 26.5% to £520.7m. The trading portfolio, which includes residential projects at Lancaster Gate and Kensington, fell by 7.7% to £287.2m.

The subsequent post-tax loss was £186.7m and no dividend is being paid.

Chairman Oliver Whitehead said: 'Whilst the last six months have seen the group continue to make good progress and achieve a number of important project milestones, the economic environment has been exceptionally tough.

'Like other real estate companies, this has significantly affected the value of our property portfolio and our results have also been impacted by the revaluation of our interest rate hedges in what is now a very low interest rate environment.'