Fate of beleaguered Carillion to become clear on Monday
UK government reluctant to bail out builder with £900m debt and major hole in pension fund
Carillion workers on a construction site in London: UK ministers are said to have met over the possible demise of Carillion. Photograph: Luke MacGregor/Bloomberg
The fate of Carillion, one of Britain’s largest construction companies, is likely to become clear on Monday following a crunch meeting with UK government figures over the weekend.
The meeting was brought forward as Downing Street grappled with the implications of the potential collapse of the group, which has numerous public sector contracts in the UK and employs 43,000 people, 19,500 of them in Britain.
Carillion’s bankers have indicated that they will not provide the £300 million of new funding it needs before February without direct intervention by the government.
But the expectation in Whitehall is that Number 10 will refuse to bow to Carillion’s demands, making it increasingly likely that it could fall into administration as early as Monday.
The Wolverhampton-based construction and management group has been struggling to reverse its fortunes after racking up at least £900 million in debts.
On Friday, Carillion’s lenders dismissed the company’s rescue plan and urged Downing Street to intervene.
One infrastructure industry expert said the final three months of the calendar year were typically cash positive and the first nine more difficult. “Hence why banks gave them space till now”, but are “much less happy to allow for them to continue”.
There are also concerns about the £580 million deficit at the company’s pension scheme. If Carillion is put into administration, the Pension Protection Fund would take over payment of pensions for the company’s 28,000 retirement scheme members. Members who are not yet drawing their pension would see haircuts to their retirement income of a least 10 per cent.
Carillion’s market capitalisation has shrivelled from £2 billion to just £61 million after several profit warnings, the first of which – on July 10th – revealed an £845 million impairment charge on the construction division.
Ministers will face intense political criticism if they have to bail out a company that continued to receive major public contracts – including on the HS2 high speed rail line – after it issued a profit warning.
Carillion’s latest effort to reverse its fortunes, a business plan presented on Wednesday to its banks, was rebuffed as “too optimistic”, according to people involved in the negotiations.
The government’s role is complicated by its reliance on the contractor for a wide range of services: the maintenance of military bases, school meal provision and work on some of the UK’s highest-profile public works projects, including the HS2 high-speed rail line. – Copyright The Financial Times Limited 2018