* Agreements extend covenant limit to 160 pct from 125 pct
* Average weighted cost of debt to rise to 5.75 percent
* Shares up 18 percent
(Adds analyst comment, shares)
By Sinead Cruise
LONDON, Feb 25 (Reuters) - British industrial property landlord Segro renegotiated loan covenants on 1.7 billion pounds ($2.5 billion) of debt in a move which could avert a costly investor cash call, lifting its battered shares.
Segro's new agreements with key lenders increase its maximum gearing covenant -- net debt to net worth -- to 160 percent from 125 percent. Interest cover covenants, which require net rental income to cover net interest charges 1.25 times, are unchanged.
Segro, which had 5.1 billion pounds of assets at June 30, said on Wednesday the covenant renegotiations provided "valuable additional headroom" in a challenging property market.
Its shares, which fell to a 16-year low at 84.5 pence on Tuesday, were up 18 percent to a six-day high at 102.25 pence by 1005 GMT.
Segro's announcement should dampen speculation it could be the next British real estate investor to succumb to an emergency rights issue as plummeting property values push loan-to-value covenant limits close to breach.
But some analysts said the company's battle to preserve balance sheet strength in the face of a record commercial property price correction was not over.
"Depending on capacity to withstand future valuation falls, the company may be able to make do without a rights issue," one analyst, who declined to be named, said.
"Even so, covenant renegotiations are a short to medium-term fix rather than a solution to high leverage. With values still falling... this needs to be accompanied by something more substantial to reduce debt, potentially disposals," he said.
JPMorgan property analysts described the renegotiations as positive, adding Segro was "not out of the woods" yet.
"It still has covenants on its corporate bonds at 175 percent, and we think these --and the loan covenants-- may be breached with a further 20 percent decline in values in 2009," JPMorgan said in a note to clients.
Under terms of the renegotiations, Segro will pay a one-off fee of 8.6 million pounds and its weighted average margin over LIBOR and EURIBOR will rise by around 1.1 percentage points, hiking the weighted average cost of its debt to 5.75 percent from 5.2 percent. (Editing by Dan Lalor) ($1 = 0.6866 pound) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)