Fraught Friday: How Carillion ended a fateful week

As UK construction and services giant Carillion faced its grim weekend task of pleading with the government for its continued survival, it left behind a week no company would want to remember.

News, which it denied, that its banks had rejected the survival plan it presented the previous Wednesday (10 January) sent its share price tumbling even further, so that it ended the day with a debt load (£1.5bn) nearly 25 times greater than its new market capitalisation of just £61m.

Carillion presented its restructuring proposal to a syndicate of five banks – Barclays, Santander, Lloyds Banking Group, Royal Bank of Scotland and HSBC – on the Wednesday.

The embattled company, which employs 43,000 staff worldwide with 19,500 in the UK, had previously asked for more time to shore up its finances with a plan to sell £300m worth of assets.

But mystery shrouded the meeting, with no outcome announced as Carillion went into crunch talks the next day with top UK government ministers over its future.

The government has a major stake in Carillion’s health, since it relies on the firm for the delivery or maintenance of rail infrastructure, schools, prisons, even homes for the military.

On Friday came more emergency talks, this time with the UK’s Pension Regulator and the pension rescue body, the Pension Protection Fund, because included in Carillion’s liabilities is a pension shortfall of £587m.

Friday was made even more fraught, however, when two further bombshells were dropped.

First, Sky News reported that Carillion had put a large accountancy firm on standby in case it was placed in administration. Carillion had, said Sky, asked EY and PricewaterhouseCoopers to compete for the role as administrator, with EY said to have been the favourite.
This revelation cemented the picture of a company on the brink of collapse.

But the bigger bombshell was dropped by The Financial Times (FT) which reported that the banks had rejected Carillion’s Wednesday proposal, believing its plan was based on overly optimistic assumptions.

Citing two unnamed people who had been briefed on the talks, the FT reported that the banks were now calling on the government to step in to prop Carillion up.

Shares in Carillion have dropped 90% since it revealed an £845m black hole in its finances in July last year, and on the Friday bombshells, they plunged another 30% (pictured).

After trading ceased on Friday Carillion released a statement denying the FT’s report.

"Suggestions that Carillion’s business plan has been rejected by stakeholders are incorrect," Carillion said. "It is too early to predict the outcome of these discussions but Carillion expects that any such agreement is likely to involve the raising of new capital and the conversion of existing financial indebtedness to equity which would result in significant dilution to existing shareholders.

"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."

It concluded: "The Board remains focused on seeking to deliver an outcome that will ensure that the Group emerges considerably strengthened and able to continue delivering excellent service to its many public and private sector customers."

Image: The Friday plunge: Down 90% since Carillion revealed an £845m black hole in its finances in July last year, its shares plunged another 30% on Friday’s bombshells

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