Interserve mulls offering Kwikform subsidiary to creditors as part of rescue plan

UK outsourcing group Interserve, which has lost around 90% of its share value since January, is reported to be considering a plan to offer creditors its RMD Kwikform subsidiary to improve its prospects of survival. The company, which hires out formwork and other temporary supports around the world, is thought to be worth between £250m and £300m. 

Sky News reported on Saturday (15 December) that Interserve and its advisers were examining the option of using Kwikform to pay down its debt pile, which the company warned last month could grow to as much as £650m.

According to Sky, the proposal would leave the remainder of ‎Interserve as "a more focused support services business". The plan has not yet been approved by Interserve’s board.

One analyst told GCR that such a deal may not greatly change Interserve’s financial situation.

Kevin Cammack, research analyst with stockbroker Cenkos Securities, pointed out that Interserve ceded control over Kwikform to its creditors in March. This was part of a refinancing deal that included a 20% debt for equity swap.

"All you’re really doing is cashing it out," he said.

He added that time was running out for Interserve to agree a longer-term financing deal. "It will have to try to do something in January. Already we’re hearing stories of suppliers working on a pay-as-you-go basis. The further we get past January with nothing done, the more fearful I would be," he said.

On 23 November, Interserve announced that it was working with its advisers to look at all options to deliver "the optimum capital structure for the group to support its long-term, sustainable development".

The company set the target of reducing its debts to around 150% of its turnover. These discussions also involve proposals to extend "the maturity dates and repayment profiles of the existing facilities".

Some form of debt-for-equity swap seems inevitable, which may result in losses for the company’s current shareholders. Interserve, which employs 45,000 people in the UK, has said it intends to announce its finalised "deleveraging plan", which would be subject to shareholder approval, in early 2019.

Cammack said the government may feel compelled to give Interserve some help in overcoming its difficulties to avoid a repetition of the Carillion fiasco, when firefighters had to be called in to serve school meals.

A report on state procurement, published by the Institute for Government on 12 December, has revealed the extent to which the UK government depends on a functioning outsourcing sector to deliver public services. It says the government now gives £284bn a year to the private sector, a third of all public expenditure.

However, the report notes that the collapse of Carillion has damaged the consensus underlying the expansion of outsourcing.

It says: "It would be wrong for the failure of a company to be mistaken for the failure of the idea; companies fail for many reasons. But the episode revealed questions about the quality of government supervision, whether public services were adequately protected from a failure by a supplier and whether small suppliers of big contractors should carry as much risk as they do."

Image: Kai Tak Cruise terminal in Hong Kong was built with Kwikform temporary works (Ceeseven/CC BY-SA 3.0)

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