Interserve shares plummet on recovery plan

Shares (Berlin: DI6.BE - news) in troubled outsourcing firm Interserve (Frankfurt: 860509 - news) have fallen by up to 73% after it revealed details of a recovery plan which will result in a "material" hit to current stock holders.

Interserve said the plan, aimed at scaling back its debt pile, was likely to see a "substantial proportion" of its outstanding borrowing converted into equity, or shares in the company.

The company, which has been under intense scrutiny since the collapse of rival Carillion (Frankfurt: 924047 - news) last year, said the Cabinet Office had "expressed full support" for its efforts to come up with a turnaround.

Interserve, which employs 75,000 people worldwide, is one of Britain's biggest private sector employers, with contracts including managing the Ministry of Defence's training base on Salisbury Plain as well as providing probation services and cleaning railway stations.

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Shares were 53% down by the close, meaning the company has seen almost 90% of its value wiped out so far this year.

Its expected debt pile of more than £600m at the end of this year already dwarfed its market value prior to trading on Monday of just £37m.

During the trading session, Interserve announced a £25m contract to redevelop a hospital in Merthyr Tydfil, but the shares were still down by more than 50% in mid-morning trading.

Chief (Taiwan OTC: 3345.TWO - news) executive Debbie White said lenders had been "supportive" of the plan for "deleveraging", or bringing down debt.

She (Munich: SOQ.MU - news) said: "The fundamentals of our business remain strong.

"The deleveraging plan will give Interserve a strong long term capital structure and provide a solid foundation on which to build the future success of the group."

The company said the form of the plan was yet to be finalised but that it was "likely to involve the conversion of a substantial proportion of the group's external borrowings into new equity, an element of which may be sold to existing shareholders and potentially other investors".

It added: "If implemented in this form, the deleveraging plan could result in material dilution for current Interserve shareholders."

Interserve had revealed in November that its debt was set to rise more than expected this year to £625m-£650m amid project delays and a weak construction market, and that it would launch plans to cut borrowing in early 2019.

The company has been through a tumultuous period that saw it slump to a £244m loss last year and has also seen it seek emergency financing.

Russ Mould, investment director at AJ Bell, said: "Almost year since the increasing intractability of Carillion's problems became apparent, its peer Interserve appears to be losing the confidence of investors at pace.

"Ostensibly a huge business with more than 70,000 staff, today Interserve is valued by the market at a little over £10m - the kind of valuation typically reserved for smaller businesses which are not yet making any money, not firms generating revenue in the billions.

"In fact, Interserve had arguably got too big, with too many moving parts, and this left it particularly vulnerable when margins came under pressure."