July 11, 2017 / 11:03 AM / 2 years ago

Battered Carillion shares slide further on rights issue fear

LONDON (Reuters) - Carillion shares (CLLN.L) fell a further 30 percent on Tuesday as analysts doubted whether a string of measures to conserve cash would be enough to stave off a rights issue.

The support services and construction company is preparing to meet investors after losing more than half of its value following the departure of its chief executive and a profit warning announced on Monday.

One of Britain’s most heavily shorted stocks, Carillion shares traded 31 percent lower at 80.5 pence by 1445 GMT, valuing the company at around 350 million pounds ($450 million).

The FTSE-250 company is looking to raise 125 million pounds by exiting some business in Qatar, Saudi Arabia and Egypt and will save 80 million pounds by suspending 2017 dividends.

Carillion booked an 845 million pound writedown on Monday against accounts receivables — customer payments owed that it wasn’t sure it would be able to collect.

Carillion’s bonds due 2019 JE114029661= fell sharply on Tuesday along with the shares. The yield-to-maturity, or the interest earned by an investor holding the bonds until they mature, spiked higher to 7.65 percent, according to Thomson Reuters data. That was double the yield on offer last Friday.

The bonds were last trading well below par value at 88.25 pence on the pound.

Stifel, one of the last remaining brokers with a “buy” rating on the stock cut its rating to “hold” warning that its rating “requires belief that assets and liabilities are now fairly stated”.

Andrew Gibbs, an analyst at RBC Capital Markets, suggested any capital shortfall would require a rights issue of more than 500 million pounds in the near term.

Average net borrowing in the first half of the year rose to 695 million pounds from 586.5 million over 2016.

Several analysts said they struggled to see how the proceeds from sales and dividend cut would be enough to reduce net debt significantly and cover the cost of any restructuring.

“None of these are anything like sufficient in the context of the about 900 million pounds second-half average net debt,” Liberum analysts wrote in a note, calling the balance sheet “a mess” and adding that it was “hard to see a solution without equity”.

The equity research team at UBS also suggested Carillion would have to sell more assets, convert debtholders to equity, raise capital or rely on a combination of all three.

Their counterparts at Morgan Stanley said the group had limited “trophy assets that can realize value.”

On Monday, Carillion interim Chief Executive Keith Cochrane said that the company was considering “all options” to reduce debt, but played down the need for a cash call to cover restructuring costs.

“I think the restructuring will cost money, but in the overall schemes of things I’m not sure that’ll be a particularly material sum albeit we need to work through the exact nature of form the restructuring takes,” Cochrane told analysts.

Reporting by Vikram Subhedar and Esha Vaish; Editing by Lina Saigol and Keith Weir

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