Carillion Plunges for Second Day on Fears of Urgent Share Sale

  • Stock down another 20 percent, following on from slump Monday
  • UBS says debt-for-equity swap also on cards to recapitalize

Carillion Plc extended its record slump in London trading amid investor and analyst concern that the U.K. builder will be crippled by additional project writedowns and will have to raise funds through a share sale.

The stock dropped 24 percent to 88.50 pence as of 1:37 p.m. in London, adding to Monday’s 39 percent plunge. The two-day rout has erased more than half the Wolverhampton-based construction company’s market value, or about 453 million pounds ($584 million).

Carillion on Monday ousted Chief Executive Officer Richard Howson, suspended the dividend and warned of lower profit. Keith Cochrane, the former CEO of Scottish engineer Weir Group Plc, agreed to step up from his role as non-executive director to lead the company on a temporary basis, saying “no option is off the table” as Carillion looks to fix the situation. The company has called in KPMG to review its slate of projects after cash flow deteriorated on some contracts.

The outcome for shareholders is “highly uncertain at this stage,” UBS analysts said in a note to clients, adding that how the company recapitalizes will be the chief concern. Carillion could make disposals, raise fresh equity, do a debt-to-equity swap or a combination of all three, the analysts said.

The company has made a contract provision of 845 million pounds, of which 375 million pounds relates to the U.K, it said. Liberum analyst Joe Brent said the relevant projects may include deals with Royal Liverpool hospital and a Sheffield tram system, although Cochrane declined to name the contracts on a call with investors Monday.

“While the involvement of KPMG provides some reassurance over current provisioning, we believe that there is still a risk of further exceptionals, a significant equity raise and we continue to have underlying trading concerns,” Peel Hunt analyst Andrew Nussey said in a note to clients.

Nussey said investors’ focus will be on Carillion’s interim results, due to be announced on Aug. 23. As a company with few assets that relies on its reputation to do business, Carillion is at risk from any question marks hanging over its finances, investors said.

“This is an asset-light business, a project-based business, it’s not like they have IPs, or brands, or factories,” said Adrien Brus, a partner at Naya Capital Management, which shorted the stock ahead of the profit warning. “If you’re a lender to Carillion, you cannot really look at, say, a huge building that they own in New York that’s worth $50 million. You’re kind of reliant on their ability to get paid on the projects that they work on.”

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