Shares plunge nearly 60pc as Carillion issues third warning

SHARES in Carillion fell almost 60pc yesterday – before recovering some of their lost ground – after the troubled support services firm issued its third profit warning this year and said it would breach banking covenants.

The outsourcer said lower than expected margin improvements, the delaying of asset sales and a project in the Middle East would drag profits “marginally lower than previous expectations”.

Carillion, which worked on the Battersea Power Station redevelopment and has been handed contracts to work on HS2, said the problems would push its full year average net borrowing up to between £875m and £925m.

As a result it expects to breach a banking covenant on Dec 31, and said it is now necessary to defer the test date of its covenants to April 30. Interim chief executive Keith Cochrane said: “More needs to be done to reduce net debt and rebuild the balance sheet.”

Those efforts would require “some form of recapitalisation,” the company said. Several analysts suggested a debtfor-equity swap was the most likely outcome. The firm has been in crisis since July, when its shares lost 70pc of their value after it issued a warning on the back of an £845m write-down.

Chief executive Richard Howson stepped down the same day and it has since been led on a temporary basis by Mr Cochrane, who will make way for Wates chief Andrew Davies in April.

Nicholas Hyett, an analyst at Hargreaves Lansdown, said: “The Carillion horror show continues. Some sort of recapitalisation was inevitable, but a possible debt for equity swap, with debt even higher than the group had anticipated, is probably as bad as anyone would have guessed.”