Crisis-hit construction and outsourcing company Carillion has issued its third profit warning of 2017, admitting that it will breach its financial covenants, which sent shares plummeting.
Under a loan agreement that Carillion has with its lenders, the company must demonstrate that its earnings can cover its debt by a certain agreed amount.
On Friday, however, the group said that – as a result of its timeline for disposals slipping, and delays to a project in the Middle East – profits for the full year would be “materially lower than current market expectations".
It said that it foresees a covenant breach at the end of December and that it would be forced to seek some form of recapitalisation, which could involve a restructuring of its balance sheet.
"Whilst we continue to target cash collections, reduce costs, execute disposals and focus on delivering for our customers, it is clear that significant challenges remain and more needs to be done to reduce net debt and rebuild the balance sheet,” said Keith Cochrane, the company’s interim chief executive.
“Constructive dialogue is continuing with our financial stakeholders, and I am grateful for their support,” he said.
In early trading, shares in Carillion lost more than half of their value and Neil Wilson, a senior market analyst at ETX Capital, said that some investors in the company might think that “this is the end”.
But he also said that Carillion is likely to be “too big to fail”.
“Government intervention is possible but this is a nightmare for ministers at such a sensitive moment for the economy,” he added.
