Shareholders in support services group Carillion (CLLN) are likely to have lost all their money on the stock after the business was placed into compulsory liquidation. It has struggled under the weight of significant debt and losing cash on key contracts.
Talks with the Government and bankers at the weekend failed to result in a solution to save the business.
Carillion had approximately £900m net debt and a £587m pension deficit. The value of its shares had fallen to a mere £61m at the end of last week. The shares were suspended this morning before the stock market opened.
WHICH CREDITORS GET PRIORITY?
Anyone owning equity - another word for stocks and shares - will be at the bottom of the list of creditors. Bondholders are ahead of shareholders in the queue for money when a company goes bust. At the top of the list are secured creditors which are generally banks or other asset-based lenders.
Money raised from liquidating a company’s assets will go toward paying off all a liquidated company’s outstanding debts. In situations like Carillion’s where debt is so high, shareholders rarely get anything back.
Carillion’s most recent financial results (for the half year to 30 June 2017) show a mere £138.2m worth of tangible assets, being property, plant and equipment.
WHAT IS THE GOVERNMENT DOING?
The Government says it will continue to deliver all public sector services following Carillion’s insolvency and that it will provide the necessary funding to maintain these services.
The company’s work includes services to the NHS and facilities management services to 50 prisons and 245 schools.
Former Carillion staff already receiving their pensions will continue to receive payment, adds the Government in a statement today.
‘Since profit warnings were first issued in July, the Government has been closely monitoring the situation and has been in constructive discussion with Carillion while it sought to refinance its business,’ says cabinet minister David Lidington.
‘We remained hopeful that a solution could be found while putting robust contingency plans in place to prepare for every eventuality. It is of course disappointing that Carillion has become insolvent, but our primary responsibility has always been (to) keep our essential public services running safely.’
WHAT DOES IT MEAN FOR CARILLION'S PARTNERS?
Speedy Hire (SDY) is among the companies who may be affected by Carillion’s collapse. Its shares fall 10.3% to 54p as investors worry about future revenue from an agreement with Carillion. Speedy Hire last May said a partnership could be worth up to £45m over three years.
Kier (KIE) says it has put in place contingency plans for a joint venture with Carillion on train and motorways work. ‘We do not expect there to be an adverse financial impact on the group arising from these joint venture contracts,’ it adds.
Balfour Beatty (BBY) expects to incur £35m to £45m cash outflow in 2018 as a result of having three joint ventures with Carillion.
Galliford Try (GFRD) has a joint venture with Carillion and Balfour Beatty on the £550m Aberdeen Western Peripheral Route contract. It says the contract terms require Balfour and Galliford to complete the work. It estimates £60m-£80m additional cash contribution is required, equally split between the two remaining partners, in order to finish the project.
WHAT DOES IT MEAN FOR THE WIDER SECTORS?
Commenting on the potential impact of the news on Carillion’s sectors, investment bank UBS says: ‘Ultimately the situation around Carillion is a function of a competitive outsourcing and construction markets in the UK, amplified by excessive financial leverage which has built up over recent years.
‘While the departure of a competitor may ease this, we think the impact will likely be small given the fragmented nature of the market.
‘We think there is some risk of financial losses in joint ventures as well as the potential adverse financial impact on the supply chain which may impact others in the sector.
‘It may also result in a review of the level of outsourcing of public services although we note that most losses came from the construction business.’
