CARILLION ON CRITICAL LIST
Crisis-ridden firm has £900m debt...but former boss earned £6m
HOSPITAL wards on Merseyside are a long way from the soulless London offices where bankers and politicians have this week been deciding the fate of one of Britain’s biggest construction groups.
But what happens to Carillion is crucial to the people of Liverpool, where the crisis-ridden firm is building the new £335 million Royal Liverpool Hospital with its 18 operating theatres, 646 in-patient bedrooms and 23 wards.
It is ten months behind schedule and Aidan Kehoe, head of the local NHS trust, has no idea when – if ever – Carillion will complete the building. For the firm is itself on the critical list, at risk of suffocating under the weight of its debts.
It is desperately trying to hammer out a rescue deal with lenders. And, given the importance of some of its projects, including hospitals and other vital infrastructure, the Government may need to administer life support.
‘If Carillion fails it will incapacitate the nervous system of the country as it’s involved in so many projects,’ says City expert Justin Urquhart Stewart, of Seven Investment Management. ‘We cannot afford for it to fail.’
Today, Whitehall officials are holding a last-ditch rescue summit to try to save the firm, and protect its projects.
If it does fail, the repercussions will not only be felt in the NHS. Carillion is involved in building roads, the HS2 rail line and housing, as well as catering for the military and maintaining prisons. In all, the Wolverhampton-based group receives more than £1billion of taxpayers’ money each year.
So critical is the firm that former Business Secretary Vince Cable has accused the Government of ‘feeding’ it contracts to keep it going, because it is ‘too big to fail’.
If the Government was trying to throw a safety net under Carillion, it didn’t work. Accountancy giant EY is this weekend on standby for an administration. And Oliver Dowden, parliamentary secretary at the Cabinet Office, confirmed the Government has contingency plans. Rescue measures include taking some of Carillion’s loss-making contracts back into public sector hands, or re-tendering them to rivals. The Government could also offer guarantees to lenders or, as a last resort, give Carillion emergency cash.
Carillion, which has £900million of net debt and a £587million black hole in its pension fund, was brought to its knees under former chief executive Richard Howson. Once worth £2 billion, its stock market value is now £61million, after it grossly overestimated the value of a string of major contracts.
Acting chief executive Keith Cochrane is scrabbling to find £300 million by the end of the month to avoid breaching terms of debts with lenders, including RBS, Barclays, HSBC and Santander UK.
If that weren’t bad enough, Carillion is being investigated by City watchdog the Financial Conduct Authority over allegedly misleading statements to the stock market.
Yet since becoming chief executive at the start of 2012, Howson, 49, who lives in a £2million luxury gated home near Skipton, North Yorkshire, has received total pay and bonuses of £6 million. As late as 2016, when the clouds were darkening over the firm, he earned £1.51million, including a £245,000 bonus in cash and shares and a £231,000 pension contribution.
Howson stepped down as chief executive in July last year, but continued to serve in a senior position as chief operating officer.
Initially, he intended to carry on in that role for a year, but finally quit in September 2017.
He is still being paid his £660,000 base salary until his notice period expires in nine months’ time, plus £28,000 worth of perks.
Leading shareholders are understood to have called on the firm to claw back some of Howson’s bonus payments. Coincidentally or not, Carillion recently changed the wording of its pay policy so bosses’ bonuses are protected in circumstances of corporate failure.
While Kehoe says the new Royal, being built next to the existing hospital, will be completed by another contractor if Carillion goes bust, Rehana Azam, national secretary of the GMB union, says: ‘Handing Carillion bosses a blank bailout cheque is completely unacceptable. They should not be rewarded for failure with public money.’
Doctors and patients in Liverpool, waiting for their long-promised hospital, may echo that sentiment.