Social housing contractor in crisis talks with banks as suppliers report tenfold rise in late payments
Contractors are starting to circle ailing social housing firm Connaught after it admitted it would breach banking covenants without an urgent cash injection.
At least two major contractors are eyeing the £660m-turnover firm, which said it was in “constructive dialogue” with its banks. At one point this week, its share price had fallen 80% from its position last Friday.
Meanwhile, credit reference company Top Service said negative reports about overdue payment to Connaught’s suppliers had increased tenfold in the past three months.
A senior figure at a major contractor said: “They have an order book of about £2bn, so plenty of companies will have a look. The only question will be the level of profitability of those contracts.”
The boss of a rival contractor added: “It would be virtually impossible to buy the whole company because you don’t know what’s in there. If it came to a pre-pack administration process we’d have a good look though.”
It is also understood that Kinetics, a private equity-backed social housing buy-and-build specialist, would be interested in buying Connaught, although the company declined to comment.
On Monday, Connaught, which made a pre-tax profit of £26.7m last year, told the city its net debt would be in excess of the expected level of £120m, and it had an “urgent requirement” to raise additional funds. This followed a forensic audit of the firm’s accounts in recent weeks, following its 25 June profit warning.
So far the firm’s customers, which include councils and major housing associations, are standing by it, although a number said they were exploring “contingency options”.
Sir Roy Gardner, its chairman, this week announced a number of senior appointments, including, Stephen Billingham, the former finance director of Atkins, and Chris Sellers, the group’s business development director, who will become acting chief executive.
Sources said the sudden disclosure of worse than expected finances was linked to Connaught’s aggressive accounting policies, although no fraud is alleged. Unlike competitors, Connaught registers the cost of mobilising for a contract over a period of years, which means it takes less of a hit on its finances. It also has a reputation for booking profits from jobs early.
Gardner has commissioned a review of accounting policies, which is likely to report in August.
Connaught is understood to have faced two questions from the Financial Services Authority over the disclosures, but the regulator’s involvement falls short of an official investigation.