Carillion: Shares recover as hopes for bail out rise amid crunch talks
Shares in troubled construction and support services group Carillion have staged a recovery amidst hopes that banks will bail out the business.
Yesterday morning the Wolverhampton-headquartered company's share price rose in early trading from 19.29p to as high as 24.62p
The Carillion share price collapsed last July by more than 90 per cent in the wake of a shock profits warning – the first of three in the space of five months last year
A year ago Carillion shares were riding as high as 237.2p, but the collapse has vastly reduced its stock market value to around £80m.
Tomorrow Carillion, which employs 19,500 across the UK including around 400 in Wolverhampton and 10,000 internationally, is due to meet its syndicate of lenders including Barclays, HSBC and Santander about a potential refinancing deal which would give the business breathing space.
It has been working for weeks with advisers on closing a funding gap.
There are hopes that a rescue plan can be agreed with the banks that may include the company pulling out of some of its most unprofitable contracts and hammering out new terms on others.
There has also been speculation that the Government might be asked to step in with support for Carillion which has a £900m debt load.
Carillion, which is currently building the new Midland Metropolitan Hospital in Smethwick and working on the massive Paradise redevelopment scheme in the centre of Birmingham, is also now under investigation by the Financial Conduct Authority
Since the firm's financial woes emerged it has won fresh contracts including some on the HS2 project.
Former chief executive Richard Howson was removed after the initial profit warning and an interim chief took over. Finance director Zafar Khan has also gone.
The arrival of its new chief executive Andrew Davies from Wates has now been brought forward from the original date of April 2 to January 22.
Carillion, which operates in Canada and the Middle East as well as Britain, announced £845m of writedowns after the profit warning and revealed £1.15 billion half year losses in September. It also faces a pension deficit of £590m.
The FCA is investigating the “timeliness and content” of Carillion’s market announcements ahead of its profit warning from December 7, 2016.
Carillion says it is co-operating "fully" with the financial regulator.
A debt-for-equity swap would reduce the pressure on Carillion's balance sheet but would be unpopular with shareholders whose stakes would be diluted.
Just before Christmas the company was thrown a lifeline when lenders delayed a test date for its financial covenants until April 30. Interim chief executive Keith Cochrane said then that the deferment showed its bankers’ “continued support” for the company.
Carillion, which also supplies services to the Ministry of Defence, as well as UK prisons and Network Rail. has been in constructive discussions with a broad range of stakeholders regarding its options to reduce net debt and recapitalise and/or restructure the group's balance sheet.
Carillion has also been trying to sell off some of it assets.
It has sold a portfolio of healthcare contracts to outsourcer Serco for £50m, but other disposals, including that of its Canadian operations, are progressing slowly.
It has also emerged that a key Government role managing the relationship between Whitehall and Carillion on its public contracts was left vacant for months last year despite the contractor’s financial problems.
It was without a Crown Representative for at least two months covering the period in which the firm revealed a half-year loss of £1.15bn and the sale of its healthcare arm.
Crown Representatives were introduced six years ago as a way of identifying cost savings for the taxpayer and acting as a point of focus for supplier-related issues.
A representative is appointed to each of the Government’s 29 biggest suppliers.
Carillion was without a representative from at least September until November 28 when Cabinet Office minister Caroline Nokes told Parliament a Crown Representative had been assigned to Carillion.