FTSE 250 company Carillion saw its shares plummet to less than half their value this week, as the extent of the group’s debt was revealed in its half-year trading update.
The construction and support services giant saw a decline in its share price of 59.5% across Monday and Tuesday, which are down another 9.95% on Wednesday as of 11:42 a.m. BST (06:42 EST) to £70.07 — from £192.10 last Friday.
Trading levels have reached lows not seen since 2000.
Carillion’s average net debt is now between £850-900 million, with an additional £587 million for pensions.
The group announced on Monday that CEO Richard Howson was stepping down, and that the board has suspended the 2017 dividend, to save an estimated £80 million. The group has written off £845 million worth of contracts, just over half of which are overseas, while the Managing Director of the UK Building businesses has left.
“Carillion looks like it’s trying to bail out a supertanker with a soup spoon,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
“Despite the group’s best efforts debt is continuing to climb, and at an increasing rate, while the construction business seems to be hitting one hurdle after another,” he said.
An analysis by UBS expects interim CEO Keith Cochrane to make a combination of changes, including raising fresh equity, having creditors convert some of their debt to equity, and selling off assets.
“It is highly uncertain what the potential impact on current shareholders will be as a result of any actions taken,” it said.
The report said the group faced a challenging restructuring and pointed to poor leadership and poor cash flow as well as the debt problem.
“Despite making progress against the strategic priorities we set out in our 2016 results announcement in March, average net borrowing has increased above the level we expected, which means that we will no longer be able to meet our target of reducing leverage for the full year,” said Philip Green, Carillion’s non-executive chairman (not the ex-BHS owner).
“We have therefore concluded that we must take immediate action to accelerate the reduction in average net borrowing and are announcing a comprehensive programme of measures to address that, aimed at generating significant cashflow in the short-term,” he said.
Although the group operates mainly in the UK, it also has business in Canada and the Middle East. But it has announced a planned end to trading in Qatar, Saudi Arabia and Egypt, and has already sold half its business in Oman, generating £12.8 million.
Hedge funds have shorted the stock in anticipation of corporate troubles.
Here is the chart: