Carillion appeals to banks as administration looms

Directors of Carillion (Frankfurt: 924047 - news) were making a final rescue appeal to its lending banks last night after the Government refused to rescue the ailing construction group, taking it to the brink of collapse.

Sky News has learnt that the company's board was meeting ahead of a last-gasp plea for financial support‎ from its syndicate of lenders, without which its collapse will be confirmed within hours.

Carillion's banks were holding talks on Sunday night about the possibility of providing "tens of millions of pounds" of short-term support, according to insiders.

:: Fears over hospital care as Carillion on brink

The developments will fuel the uncertainty facing 19,500 UK-based employees of Carillion, which is a major contractor on the HS2 high-speed rail link and a string of new hospitals and schools across the country.

Government sources said that emergency talks on Sunday concluded with John Manzoni, the permanent secretary at the Cabinet Office, announcing that Carillion would not receive any special support from taxpayers.

The company's bosses had hoped that ministers might agree to a proposal made over the weekend to guarantee payments on public sector contracts, which would enable it to borrow more money .

Carillion needs £300m of short-term funding from the end of this month, and its banks had previously indicated that they were reluctant to provide it without significant support from the Government.

However, it remained possible that those lenders to the UK's second-biggest construction group could yet change their minds, according to some people close to it.

Carillion's large syndicate of lenders includes Barclays (LSE: BARC.L - news) , HSBC and Santander UK (LSE: 44RS.L - news) , as well as a host of overseas firms.‎

:: What does construction firm Carillion do?

The collapse of Carillion would expose Theresa May's administration to a protracted and potentially chaotic fallout ‎from the failure of a major Government delivery partner.

The crisis at the company has already drawn stinging criticism aimed at ministers from Sir Vince Cable, the Liberal Democrat leader, and Jon Ashworth, Labour's shadow health secretary.

Wolverhampton-based Carillion is the second-largest supplier to Network Rail and maintains approximately half of the UK's prisons as well as roughly 50,000 homes for the Ministry of Defence.

It is also engaged in building the Aberdeen Bypass as well as schools across Britain.

Sky News revealed on Friday that EY, the accountancy firm, had been placed on standby to act as administrator to Carillion although it remained possible that PricewaterhouseCoopers could be appointed.

Ministers across Whitehall with responsibility for prisons, hospitals, schools and transport infrastructure have been drawing up contingency plans for the company's collapse, including establishing new vehicles to take on Carillion contracts.

As recently as Friday night, Carillion insisted it was holding "constructive discussions with a range of financial and other stakeholders ‎regarding options to reduce debt and strengthen the group's balance sheet".

Carillion added that it was in dialogue about securing short-term financing "while the longer-term discussions are continuing".

In one of several crisis meetings held in recent days, Government officials and regulators met on Friday to discuss how to safeguard the interests of more than 28,000 pension scheme members who could face cuts to retirement payments if Carillion does not survive.

Senior (Other OTC: SNIRF - news) civil servants from the Cabinet Office attended an emergency summit that included representatives from The Pensions Regulator (TPR), Pension Protection Fund (PPF (Shenzhen: 300258.SZ - news) ), Carillion's pension trustees and an assortment of City advisers.

Carillion has a pension deficit of roughly £580m, although this figure would be expected to rise sharply if measured according to the cost of insuring its various retirement schemes on a full buyout basis.

The company has issued a string of profit warnings during the last six months, sending it scrambling to raise more cash after unveiling a thumping £1.1bn loss for the half-year.

It had been targeting a number of disposals aimed at generating £300m, including that of its Canadian operations, are progressing more slowly than originally anticipated.

Its only asset sale since the crisis erupted has been to offload a portfolio of healthcare contracts to rival outsourcer Serco for £50m.

Earlier this month, the company was dealt a fresh blow when the City watchdog launched a probe into the "timeliness and content" of statements it made to the‎ stock market about its financial position between December 2016 and July last year, when a massive profit warning sent its shares crashing by 75%.

Since then, the company has cleared out its executive team, including chief executive Richard Howson and finance director Zafar Khan.

Mr Howson was replaced on an interim basis by Keith Cochrane, the former Weir Group (Other OTC: WEIGY - news) boss, with Andrew Davies due to arrive from Wates Group as his permanent successor on 22 January.

Carillion reported a first-half pre-tax loss of £1.15bn in September, while it announced just before Christmas that its lenders had agreed to defer a test of its borrowing agreements from 31 December to 30 April.

From a peak of about £2bn, the company now has a market value of just £61m.

Carillion declined to comment.