Carillion's Downward Spiral Quickens With Debt-Covenant Warning

Updated on
  • U.K. builder’s market value plummets on latest profit miss
  • ‘Little value’ left for equity holders, Peel Hunt analyst says

The gates of a construction site for new apartment blocks built by Carillion Plc in London.

Photographer: Simon Dawson/Bloomberg

Carillion Plc lost a third of its market value after saying it’s in danger of breaching debt covenants, as the U.K. builder that only three years ago was trying to buy a rival now struggles for survival.

The Wolverhampton-based construction company issued its third profit warning in half a year on Friday and said it’s in talks with creditors about “some form of recapitalization” in the first quarter of next year. Delays in projects and disposals will lead 2017 profits to be lower than expected, it said.

Carillion’s spiral downwards has been swift. The company is worth about a tenth of what it was a year ago. The shares fell as much as 60 percent and were trading down 34 percent to 27.25 pence at 10:23 a.m. in London, bringing the market value to 118 million pounds ($156 million).

There is “little value currently for equity holders,” Peel Hunt analyst Andrew Nussey said in a report to clients, noting that Carillion’s situation is specific to the company.

Carillion’s spectacular fall has been gathering pace since July after a series of construction contracts soured. The company, which three years ago was pursuing Balfour Beatty Plc, has resorted to emergency moves including installing non-executive director Keith Cochrane as interim chief executive officer and calling in financial advisers as well as KPMG to review its books. It’s now in a race against time to sell assets and shore up its balance sheet as losses and writedowns pile up. The effort comes amid a slowing of U.K. construction projects due to Brexit.

“It is clear that significant challenges remain and more needs to be done to reduce net debt and rebuild the balance sheet,” Cochrane said in Friday’s statement. The company will continue to target cash collections, reduce costs and execute disposals, he said.

The board expects to begin the first moves towards recapitalization in the first quarter, and options include a restructuring of the finances, Carillion said. In the interim, the company is seeking to push back by four months until April the test date for covenants to allow for a recapitalization plan, it said. Borrowings are predicted to total 875 million pounds to 925 million pounds at the end of 2017.

In a bid to shore up its finances, Carillion last month arranged new credit lines totalling 140 million pounds, and agreed to sell its health-care unit to Serco Group Plc for 50 million pounds. The problems deepened in the fourth quarter, when some asset sales and the start of a significant new project in the Middle East were delayed.

The company has appointed Andrew Davies as CEO and the former chief of construction firm Wates Group Ltd will start in April. Carillion has in recent weeks announced a number of new contracts, including work on the U.K.’s new cross-country railway known as HS2.

— With assistance by Kasper Viita, and Joe Easton

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