Hedge funds pocket £80m as construction giant falls 39pc

HEDGE funds made around £80m as construction firm Carillon’s stock dived amid a profit warning and £845m write down.

They have been betting for months on the heavily indebted firm’s shares falling – known as shorting a stock – and yesterday they tumbled more than 39pc after a disastrous trading update was issued a day earlier than planned.

Chief executive Richard Howson, 49, stepped down immediately as the firm, which helps maintain Britain’s roads and railways, said it was pulling out of contracts, suspending dividends and reviewing the business.

Experts also raised the alarm over the £800m pensions’ deficit at Wolverhampton-based Carillion, which employs more than 48,000 and is helping to rebuild Battersea Power Station.

Seventeen hedge funds including Marshall Wace, Black Rock and naya Capital were betting the stock would fall as of Friday, according to Financial Conduct authority data.

With 3.7pc of the stock or around 15m shares on Friday, Marshall Wace could have made around £9.5m from the fall. naya Capital, with 1.47pc or 6m shares, could have made around £3.7m. in total the 17 hedge funds shorting the stock could have made around £80m after the company’s value dropped by around £322m.

Carillion said it had reviewed all its contracts amid cash flow problems and ballooning dents. it has written down £375m mostly on three public private partnerships in the UK, and £470m on overseas markets. it did not name the contracts.

it now expects revenue to be between £4.8bn and £5bn, less than the expected £5.03bn, and overall performance to be below expectations. it forecasts borrowing of around £695m for the first half of the year, compared to £586.5m for the whole of 2016.

Bosses added they would save £80m by suspending dividends for the year, and are pulling out of unnamed construction public-private partnership contracts in the UK, as well as construction work in Qatar, Saudi arabia and Egypt. They said all options were under consideration as part of a review of the business and its capital structure.

non-executive chairman Philip Green said ‘average net borrowing has increased above the level we expected, which means that we will no longer be able to meet our target of reducing leverage for the full year’.

The company, therefore, ‘are announcing a comprehensive programme of measures aimed at generating significant cash flow in the short-term’.

independent analyst Stephen Rawlinson, of applied Value, said Carillion’s pensions’ deficit was costing it around £50m per year in recovery payments alone. Curing this will be ‘key to survival’, he noted.