Rising star in the City who saw huge Kier slump coming
First Carillion, now short-sellers target building giant
THE huge crash in Kier’s share price was predicted by a rising hedge fund star 24 hours before the building firm said it was seeking £250 million in emergency funding.
The company, responsible for billions of pounds of state infrastructure projects from schools to Crossrail, revealed on Friday that it was issuing a new batch of shares. The announcement wiped 33 per cent off its share price on the day.
A day earlier, Vikram Kumar, founder of hedge fund Kuvari Partners, warned a private conference in London of Kier’s ‘ narrowing margins in an already low margin sector’ and questioned the true health of Kier’s balance sheet.
He said the company’s efforts to free up cash looked ‘unachievable’ and predicted it would have to raise equity to reduce its debt pile, adding that the shares could fall by as much as 50 per cent. According to new information, almost 20 per cent of Kier’s value – or £150 million of shares – was held by shortsellers ahead of Friday’s plunge.
The figure, prepared by data provider IHS Markit, is far more than the 13.9 per cent publicly disclosed to financial authorities.
Short contracts are used by speculators to borrow shares from other investors, which they then trade. The speculators make money if the shares fall in value before they return the shares to the investors.
The Mail on Sunday can reveal that short-sellers targeting Kier, which employs 21,000 staff, include a number of companies that pre- dicted the implosion of rival outsourcing firm Carillion in January.
As well as Kumar’s Mayfair-based fund, the list includes Rye Bay Capital, which notified the Financial Conduct Authority that it held 0.7 per cent of Kier’s shares under contract just days ago.
The fund shorted Carillion shares in June 2017 after recruiting 31year-old analyst James Woodrow, who had written a report on the firm’s parlous financial state. Carillion collapsed seven months after Rye Bay’s initial disclosure.
Other investors with short contracts on Kier include George Soros’s SFM and Marshall Wace, which also bet against Carillion in the months prior to its collapse.
Kier, which has been on an acquisition spree to grow in scale, says it has worked on £5 billion of schools contracts in the past decade. Last week it said net debt had risen to £624 million from £186 million in June. But it insists its contracts tend to be far smaller than Carillion’s and has pledged to cut debt.
But there are wider concerns over the health of outsourcers. In recent weeks Inter serve has revealed debts are mounting, while Capita has sought to douse concerns with a pledge to significantly reduce its pension deficit by 2021.
Last weekend, Capita founder Sir Rod Aldridge told The Mail on Sunday of the Government’s growing reliance on contractors that make little profit for the work they do. He said t he Government had become ‘obsessed’ with getting a good deal ‘without understanding what the implications are’ for the health of contractors. The Cabinet Office is working on plans that will force outsourcers to reveal more about their financial health.
IHS Markit figures show Interserve and Babcock, a defence contractor, have close to 10 per cent of their shares held under contract, many in tranches not large enough to be publicly disclosed but most of which are believed to be under short contracts.