Debt-laden Carillion weighs share sale after warning again on results

By Esha Vaish

REUTERS - Carillion is looking at options including a share issue to shore up its balance sheet, the British construction and support services group said, as a warning that full-year results would be lower than expectations knocked its shares on Friday.

The company, whose shares have lost two-thirds of their value since it announced a writedown on July 10, booked a further 200 million pound provision relating to services contracts, following a review of its entire business.

"While self-help measures will lead to a material reduction in our average net debt, these alone will not be enough to achieve our target. The board is therefore considering other available options, including raising equity to repair and strengthen the balance sheet in due course," Carillion said.

Friday's profit warning is Carillion's second this year after the firm booked an 845 million pound ($1.13 billion)writedown on problematic construction contracts in July, prompting the departure of its chief executive.

Analysts have said they expect Carillion to have to raise new funds to shore up its balance sheet, although uncertainty over its contracts, its debt position and its pensions obligations have raised questions over the value of the company.

"We believe that the business could have an enterprise value of 1.6 billion pounds," Liberum analysts wrote in a client note.

Carillion's shares were down 11 percent to 57 pence at 0732 GMT on Friday, cutting its market capitalisation to around 245 million pounds.

Shares in Carillion had risen earlier this week after a London newspaper reported that a Middle Eastern buyer was considering making a bid.

"TOO COMPLEX"

"The reality is that Carillion has become too complex. It has been a business that has too many layers of management from top to bottom," the company's interim CEO Keith Cochrane told Reuters following the announcement.

Cochrane said the aim of its cost cutting programme was to make the company "more agile" and efficient and the company would look at further redundancies in addition to the 340 job cuts which are already in an consultation process.

Carillion said that its 2017 revenue was expected to be between 4.6 billion and 4.8 billion pounds, down from a previous expectation of 4.8 billion to 5 billion pounds.

Full-year average net debt was expected to be between 825 million pounds and 850 million pounds, it said, as it announced measures to boost its balance sheet including raising 300 million pounds from asset disposals and an 80 million pound reduction in its pension deficit.

"Whilst there are many good businesses within Carillion, we remain wary given the many balance sheet uncertainties," Peel Hunt analyst Andrew Nussey wrote in a client note.

Nussey reduced underlying full-year pretax profit expectation to 110 million pounds from 135 million pounds and forecast that Carillion would need to raise more than 500 million pounds from fresh equity or potential disposals.

Carillion said on Sept 11. that its chief financial officer Zafar Khan was leaving and would be replaced by Emma Mercer, the finance head of its UK construction business.

($1 = 0.7458 pounds)

(Reporting by Esha Vaish in Bengaluru; Editing by Alexander Smith)