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鈥檚 profit warning and admission it will breach its financial covenants.
The former Wates boss has been asked to turn around the country鈥檚 second biggest builder which has been hit with a slew of bad news since it first announced an 拢845m provision on schemes over the summer.
Last week the firm said its year end debt would now be between 拢875m and 拢925m with 2017 profit 鈥渕aterially lower鈥� 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 鈥� four weeks after Davies (pictured) joins.
The firm said 鈥渋t expects to be implementing its recapitalisation plan鈥� by then but Cenkos analyst Kevin Cammack said he expected this to be wrapped up ahead of Davies starting.
鈥淗e would be crazy to join not knowing whether that [refinancing] had been achieved,鈥� he said. 鈥淚 don鈥檛 think he or anyone of calibre would join without that in place.鈥�
Cammack said last week鈥檚 grim news put Carillion鈥檚 survival on a knife-edge. 鈥淏ut I鈥檓 still inclined to say they will muddle through. It will be a god almighty mess if they fail.鈥�
Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said asking lenders to swap their debt for shares in the firm was now 鈥渋nevitable鈥�.
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鈥檚 revamped 拢8bn school building framework.
One source, who asked not to be named, said government would be piling the pressure on Carillion鈥檚 banks to strike a debt for equity deal. 鈥淭hey will be under enormous pressure from government. It will be a god almighty mess if they fail 鈥� the supply chain is massive.鈥�
The firm has already promised to rake in 拢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.
鈥淥ur members [need] to be properly informed of what the future holds,鈥� said its national officer for construction Bernard McAulay. 鈥淭hey need to know how Carillion intends to deal with its current financial crisis.鈥�
Cammack said: 鈥淚f your business is going to be quite a bit smaller, say 20%, it鈥檚 entirely reasonable to think that staff numbers will go down by that figure as well.鈥�
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