Carillion attempts to assuage joint venture partner concerns

 
Oliver Gill
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Workers Play Important Role In Dubai's Huge Construction Projects
Carillion has large construction contracts in the Middle East (Source: Getty)

Carillion has held a series of emergency meetings as the crisis-hit contractor hopes to quell unease from joint venture partners, according to reports.

It is common practice for rival firms to team-up on large infrastructure projects, ring fencing the financing of them in special purpose vehicles.

But in the event of a failure by one of the partners, it can fall on those remaining to fulfil project obligations.

According to reports by the Sunday Telegraph, Carillion has met with partner firms to assure them its troubles will not leach onto rivals' balance sheets.

Read more: Hedgies bag £80m on Carillion crash

The firm reports its half-year figures on 11 August, with an update expected on its recent financial woes.

Carillion has drafted in specialists from EY to help improve the firm’s cash flow, which are likely to be holding discussions with customers to accelerate monies owed to the FTSE 250 firm.

Cash

Industry watchers have highlighted Carillion’s cash coffers have suffered by expanding from construction projects into the provision of support services. Construction contracts tend to attract large cash receipts up front with further cash received as the build out continues. In contrast, support services contracts incur large cash outflows as part of the tendering process with inflows back-ended along the life of the contract.

Despite ongoing negotiations, independent construction M&A analyst Greg Malpass highlighted there was a strong investment case for Carillion.

“The fundamentals of the company’s business mix and business model, are sound in the long term,” he said.

There is substantial upside for a potential strategic investor, interested in acquiring a diversified construction and support services business with interests in the UK, Canada and the Middle East, and a leader in public private partnerships.

Carillion has been approached for comment.

Read more: BT's Openreach checks £1.5bn Carillion deal

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