Analysts say debt for equity rescue package now inevitable ahead of Andrew Davies taking over next April
Pressure for Carillion to complete a refinancing deal before new chief executive Andrew Davies moves in next April has grown following last week’s profit warning and admission it will breach its financial covenants.
The former Wates boss has been asked to turn around the country’s second biggest builder which has been hit with a slew of bad news since it first announced an £845m provision on schemes over the summer.
Last week the firm said its year end debt would now be between £875m and £925m with 2017 profit “materially lower” than previously outlined. And it is deferring the test date for its financial covenants from the end of this year until the end of April – four weeks after Davies (pictured) joins.
The firm said “it expects to be implementing its recapitalisation plan” by then but Cenkos analyst Kevin Cammack said he expected this to be wrapped up ahead of Davies starting.
“He would be crazy to join not knowing whether that [refinancing] had been achieved,” he said. “I don’t think he or anyone of calibre would join without that in place.”
Cammack said last week’s grim news put Carillion’s survival on a knife-edge. “But I’m still inclined to say they will muddle through. It will be a god almighty mess if they fail.”
Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said asking lenders to swap their debt for shares in the firm was now “inevitable”.
The firm has picked up a number of government jobs in the past few months including work on two tunnel schemes in the Chilterns for HS2 and has won spots on the Education and Skills Funding Agency’s revamped £8bn school building framework.
One source, who asked not to be named, said government would be piling the pressure on Carillion’s banks to strike a debt for equity deal. “They will be under enormous pressure from government. It will be a god almighty mess if they fail – the supply chain is massive.”
The firm has already promised to rake in £300m in disposals to bring its debt pile down and union Unite now wants face-to-face talks with Carillion bosses over its future plans.
“Our members [need] to be properly informed of what the future holds,” said its national officer for construction Bernard McAulay. “They need to know how Carillion intends to deal with its current financial crisis.”
Cammack said: “If your business is going to be quite a bit smaller, say 20%, it’s entirely reasonable to think that staff numbers will go down by that figure as well.”