Troubled Carillion lines up administrator amid rescue talks

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Troubled construction firm Carillion has denied reports lenders rejected a proposed rescue plan for the business.

The firm's troubles have prompted calls for the government to bring its contracts back into public control amid fears it could "collapse".

In a note to clients, Peel Hunt's analysts said: "We suspect that given its mounting liabilities, recent press comment, growing customer worries and supply chain hesitancy that Carillion will be forced (by the banks) to accelerate its financial restructuring".

Government, pension authorities and stakeholders met on Friday in an attempt to thrash out a rescue package for the firm that would help it avoid collapse.

"Government needs to urgently consider a public sector vehicle for taking on this vital work, just as it has when private rail companies have walked away and failed the taxpayer." she added.

In addition to its rail operations, Carillion also manages almost 900 schools, provides services to the NHS and works with National Grid.

The group - which was demerged for Tarmac in the late 1990s - is a major supplier to the government with contracts across education, the NHS and the rail industry, including HS2.

Laith Khalaf, a senior analyst at Hargreaves Lansdown, said it was likely the Scottish and UK Governments had been working on contingency plans since financial difficulties at Carillion first became clear previous year.

Adding to the pressure on the small cap firm - which issued three profit warnings in less than six months a year ago and has seen its market value collapse by 90% - was a recommendation from broker Peel Hunt to sell the stock ahead of forthcoming newsflow.

"You can see that one the one hand, it's in everybody's best interest that Carillion continues, but at the same time it's hard to chart a way forward".

Transport Scotland said that Carillion had "no intention of withdrawing" from the AWPR project, and that the consortium delivering the route "remains committed to completing it in accordance with the contract". The long-awaited route is due to be finished this year following lengthy delays.

Carillion has operations ranging from construction to catering, employing about 19,500 people in Britain.

Any agreement was likely to involve the raising of new capital and the conversion of existing debt to equity, which would result in "significant dilution to existing shareholders", it said in a statement.

A Downing Street spokesman also said the Government was monitoring the unfolding situation.

"As part of its engagement with stakeholders, Carillion is in constructive dialogue in relation to additional short term financing while the longer term discussions are continuing".

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