Troubled property services group Erinaceous yesterday warned hard hit shareholders their holdings may soon be worth even less.

Share values may be significantly diluted after refinancing. The firm said it was identifying ways to cut debt - including a debt-for-equity swap - because it has unsustainable borrowings.

But Erinaceous said bankers confirmed support and a willingness to provide facilities. That will be a little comfort given a previous warning there was material uncertainty regarding an ability to continue.

It has been a spectacular fall for Erinaceous which in Birmingham bought companies built up by businessmen Richard Graves and John Nolan.

In a rise from nowhere architects, estate agents, property managers, letting agents, insurers, building supervisors, engineers and surveyors were purchased. Early last year Erinaceous's share price topped 400p.

Its downfall has been equally fast.

In March last year, Erinaceous was caught up in an investigation by the Serious Fraud Office.

It concerned valuations carried out by offshoot Dunlop Haywards.

The SFO was probing a suspected property fraud against the Cheshire building society which apparently involved Birmingham properties.

Erinaceous subsequently insisted the problem had been confined. But it emerged other lenders had been caught up, and Erinaceous agreed a substantial outof-court settlement with Nationwide.

Then, after various other revelations and unpopular first-half trading figures, the firm breached banking facilities.

Chief executive Neil Bellis, finance director Michael Pearson and chief operating officer Lucy Cummings all departed.

Chairman Nigel Turnbull took charge - he has now reverted to non-executive status - and brought in restructuring expert Tim Redburn as interim chief executive.

His previous projects have taken in Dan-Air, Simon Group, Henlys, Alpha Airports, Night-Freight and most recently Esporta.

The value of Erinaceous has fallen from £400 million this year to £25 million.

The company has been focusing on a cost saving programme and has now completed what it describes as the preliminary stages of an ongoing strategic review.

The firm stated in an announcement to the Stock Exchange: "Due to the rapid expansion of the business under the previous management team, the group has an unsustainable level of borrowings.

"As a matter of priority, the board is working with bankers to identify ways to reduce the group's debt which may include a debt-for-equity swap. The board believes, as a result of any refinancing proposals under discussion, it is probable existing shareholders will see the value of their holdings significantly diluted.

"In the interim, the group's bankers have confirmed they remain supportive and the new management team and have confirmed they will provide additional facilities. The management team has identified a number of the group's businesses enjoy strong and leading positions in attractive niche segments within property services and insurance."

Shares closed down 5p to 9.25p.