Is Carillion in trouble? Carillion says no but many say yes. UK construction firm Carillion has been reported as rejecting a rescue plan to help it overcome a large debt problem. Carillion is an important construction company with some key government projects including prisons and schools. One of its largest individual projects is the construction of part of the HS2 high speed railway line. The company insists that talks with stakeholders are still being held and that there is currently no need to worry.
Carillion Debt Around £1.5 Billion
The business is being weighed down with a debt of around £1.5 billion ($2.06 billion). This includes a shortfall on its pension scheme of £587 million. When these are combined, many fear for the future of the company. It has been reported that UK cabinet ministers are formulating plans to take around £200 million worth of prisons contracts from Carillion. If this is the case, then the situation is an extremely serious one for the company.
Carillion shares plummeted by over 28% Friday after reports that creditors had refused to accept a possible rescue plan. According to the company, it is still in constructive discussion regarding short-term financing and that longer term negotiations were continuing. The company held talks with government representatives and the Pensions Regulator on Friday, but the outcome of these talks have not yet been released.
Late Payments and Risky Contracts
Carillion employs 43,000 people, around 50% of which are in the UK. Its other areas of operation are Canada, the Caribbean and the Middle East. Its 2016 sales totaled around £5.2 billion ($7.14 billion) and Carillion has a market capitalization of close to £1 billion up till July. Since July, its sale price has crashed to a level that results in the firm being worth only £65 million: a massive drop. So sure, Carillion is in trouble!
Carillion’s main problems have been delays in payments for Middle East contracts and the adoption of too many risky contracts that resulted in losses. It now seems to have accrued a debt of £900 million and a pension deficit of £600 million. This is serious trouble in anybody’s language!
So Is Carillion in Trouble? You Bet It Is!
With share prices dropping 90% in a year, the future looks bleak for Carillion. Its demise would hit the government hard, particularly ongoing projects such as HS2, and result in large job losses. Time will tell the outcome, although banks are becoming reluctant to lend the company more money. The next few weeks, or perhaps even days, will clarify the future of the company.
Is Carillion in trouble? You bet your life it is and it will take a great deal of negotiation and intervention to save it. However, it is unlikely that the government will allow it to fail so the next week or two will be interesting. Is the Carillion rescue plan in doubt? It depends on who you listen to!
