Shares in Carillion fell to new lows today as hedge funds smelled blood in the water and upped bets against the stricken construction firm.
Carillion’s stock plummeted as much as 15 per cent in mid-morning trading before regaining ground. Currently, shares are trading almost 10 per cent lower than yesterday's closing price.
Hedge funds have stuck to their guns despite a run on Carillion’s stock that has wiped out over 80 per cent of its start of year market capitalisation. Instead of taking profits by closing out short positions, latest data suggests funds are falling over themselves to borrow stock in order to bet against Carillion.
Some 31 per cent of Carillion’s shares are currently on loan, a figure that has risen by four per cent in the last week, according to IHS Markit. This constitutes almost 99 per cent of all Carillion’s stock that can be borrowed.
Rising demand by funds betting against Carillion means the cost to borrow the firm’s stock has risen to between 12 and 15 per cent – a three-year high.
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Carillion was scheduled to report its interim figures today but instead postponed them until next month. On Tuesday it firmed up the date as 29 September.
Hargreaves Lansdown equity analyst Nicholas Hyett said markets could also have been spooked by investors not realising the results announcement had been pushed back.
Carillion is working with accountants from EY to shore up its cash position and with HSBC, Morgan Stanley and Stifel to put a capital structure in place that will put the company on firmer footing.
Independent construction M&A analyst Greg Malpass said that by waiting until the end of September to update investors, Carillion had more scope “to announce better news on refinancing”.
He added: “Carillion is a major player on PFI and government contracts and 50,000 employees so the government won't want to see it collapse because of debt.”
Carillion declined to comment.
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Why do funds borrow shares to bet against companies?
In order to bet against a company, a fund borrows shares, usually from another institutional investor, pledging to return the same number of shares at a later date.
The shorting fund then sells the shares on the market. When the stock falls in value, the fund buys the shares back at a lower price and books the profit between the sale and purchase values.