(Reuters) - Kier Group (KIE.L) shares fell more than 20 percent on Friday after the British builder announced a surprise plan to tap shareholders for some 264 million pounds, blaming the reluctance of banks to lend to the construction sector.
Kier, which builds and maintains highways, railway tunnels and houses, said banks were looking to cut their exposure to the industry after the collapse of rival Carillion (CLLN.L) in January.
“There has been a recent change in sentiment from the credit markets towards the UK construction sector, with various lenders indicating that they will be reducing their exposure,” Kier said in a statement just two weeks after it issued a trading update saying it expected to meet full-year expectations.
“This has led to lower confidence among other stakeholders and an increased focus on balance sheet strength,” the statement added.
The company, which has contracts for work on major British projects including the Crossrail link across London and the HS2 high-speed railway, said it would offer 64.5 million new shares, or 33 for every 50 held, at a deeply discounted 409 pence per share, 46 percent less than its closing price on Thursday.
It said holders of about 32 percent of its equity had said they intended to take up their entitlement.
Shares in the company, part of the UK midcap index .FTMC, were down 22.2 percent at 622.5 pence by 1453 GMT, after hitting a 10-year low of 573.5p.
Kier, which has a net debt of about 624 million pounds, has been cutting costs and looking to sell its non-core businesses as part of a turnaround strategy aimed at boosting profits and reducing debt.
The company plans to use the proceeds of the share sale to lower its debt faster and strengthen its balance sheet. It said the majority of its banking facilities were committed until 2022.
Kier also said its customers were increasingly focussing on service providers’ balance sheets, while stakeholders were increasing pressure to shorten supply chain payment terms.
Carillion collapsed early this year when its banks pulled the plug, triggering one of Britain’s biggest corporate failures in a decade and adding to uncertainty about the future of a sector that has tended to chase large contracts on slim margins.
Rival Interserve Plc IRV.L said last week its debts would rise more than expected this year amid project delays and a weak construction market, but added it would launch plans to cut borrowing in early 2019.
Kier also said on Friday its current trading and outlook for 2019 were in line with its expectations. It had said earlier this month that its order books and development pipelines remained strong, building on a higher-than-expected rise in annual profit reported in September.
Rothschild is acting as financial adviser to Kier on the issue, which has been fully underwritten by Numis Securities, Peel Hunt, Citigroup Global Markets, HSBC and Banco Santander, all of which are acting as joint bookrunners.
Reporting by Arathy S Nair in Bengaluru; Editing by Shounak Dasgupta and David Holmes