Collapse of Construction Giant with 43,000 Employees Globally Sparks Fear and Mayhem
Collapse of Construction Giant with 43,000 Employees Globally Sparks Fear and Mayhem from Wolf Street
“The company that runs Britain”: profits were privatized, costs will be socialized.
The decline and fall of 200-year old UK infrastructure group Carillion was as spectacular as it will be costly. It was forced into compulsory liquidation this morning, following the breakdown of crisis talks with its banks and the government. The company, with global sales of £5.2 billion in 2016, has 43,000 employees, including 20,000 in Britain and 10,000 in Canada. It’s saddled with debts and an underfunded pension plan.
Its shares had plunged by 95% over the past 12 months, from £2.40 ($3.53) in January 2017 to as low as £0.12 ($0.17).
“We have been unable to secure the funding to support our business plan, and it is therefore with the deepest regret that we have arrived at this decision,” the company said in a statement. And the government is now forced to guarantee public services, ranging from school meals and hospital maintenance to roadwork.
Carillion’s problems began after a spate of contract delays and a decline in new business left it at the mercy of its lenders and battling a burgeoning debt pile. The rot became irreversible once the hedge fund community, scenting fresh blood, began shorting the stock en masse in November 2016.
In July 2017 a partial review by auditors KPMG identified £845 million of contract write-downs, sparking a massive rout in the shares. The finance director who helped unearth those problems, Zafar Khan, was duly fired by management in September, but the damage had already been done: Carillion shares were down 70% and the stock was the most shorted in Europe. As a leading City analyst told City A.M, the extent of the problems was “gobsmacking.”
Last week, senior government ministers held a crisis meeting to discuss further steps. The choice was stark: either bail out the firm or it let it fail, with ugly ramifications for its project partners, employees, creditors, including three lenders, HSBC, RBS and Santander UK, and UK public services as a whole.