11th Hour Talks Fail
The main story on Monday morning was the news that UK contractor Carillion enters liquidation following the failure of eleventh hour talks aimed at saving the business. The construction giant had been in talks with both its lenders and the government in a bid to salvage the company, however, these talks were un-successful, and Carillion announced on Monday morning that it is entering liquidation. The construction contractor which has been an industry titan for decades, hit hard times after losing money on major contracts which led them into debt.
The statement issues by Carillion said that the company “continued to engage with its key financial and other stakeholders, including Her Majesty’s Government, over the course of the weekend regarding options to reduce debt and strengthen the group’s balance sheet”
The failure of Carillion is a major blow as the company is one of the key contractors involved in the government’s flagship infrastructure project, HS2. Carillion also provides a significant amount of the services for schools, the armed forces and road projects for the Highways Agency. Carillion supplies maintenance services to Network Rail and maintains around 50,000 homes for the Ministry of Defence.
Massive Pension Deficit In Focus
The total amount of debt outstanding for the company is £1.5billion with RBS, Barclays, HSBC, Lloyds & Santander UK owed a combined £900million. Furthermore, Carillion’s pension scheme is in a £590million deficit.
The talks held over the last few days were aimed at achieving “limited short term financial support, to enable it (Carillion) to continue to trade whilst longer term engagement continued”. However, following the breakdown of talks, the company is now entering liquidation with PwC expected to be appointed to run the process.
Future of Firm’s Staff in Peril
Focus now shifts to the future of the firm’s 19,500 staff and a lot of pressure is being placed on the government. Carillion has said that the government will provide the funds to allow essential government services, provided by Carillion staff, to continue though, the government is expected to renegotiate new contracts for these services in the long run. Some of Carillion’s other services will be taken on by other firms.
While devastating, the liquidation of the company has been clearly signalled over the last year with the company issuing three profit warnings over 2017 as the firm struggled to battle rising debt levels and the growing chasm in its pensions fund.
Over the first half of financial year 2017, the company registered a £1.4bln loss and suffered a heavy loss of investors following the departure of its Chief Executive. Shares in Carillion closed at 14p on Friday down from around 230p around a year ago.