Crisis-hit contractor Carillion faces a race against time in its mission to raise hundreds of millions of pounds from a challenging sale of its Canadian operations.
The firm posted a £1.2bn half-year loss last Friday after booking a further £200m in contract write-downs to add to the £845m of provisions revealed in July.
Boss Keith Cochrane warned of impending cuts to jobs and pensions and admitted that “no one is any doubt of the challenge that lies ahead”.
Carillion has pinned hopes of survival in the short-term on raising cash by offloading its Canadian and UK healthcare arms. Canada is the biggest component of the two businesses, which the firm hopes will generate more than £300m.
But a sale across the Atlantic is facing a number of key hurdles. These include a small buyer population, a tight timeframe, hostile suitors looking for a bargain and the need to pay millions back to project partners as well as banks.
One London-based fund manager said the Canadian sale may only yield cash “in the tens of millions of pounds”.
Meanwhile the president of a Canadian contracting firm told City A.M.: “I don’t see a natural or obvious buyer for Carillion [in Canada]”.
In August, listed Canadian construction giant Aecon kicked off a process to sell itself by hiring banking advisers. And in July, SNC-Lavalin completed its purchase of the Canadian arm of British contractor WS Atkins. Employee-owned Kiewit is understood to be hamstrung by shareholder rules precluding it from a deal.
The nature of Carillion’s short-term funding also causes complications. The firm has secured a further £140m of funding through revolving cash facility – similar to a corporate overdraft – from its banking group.
However, £40m of this lending must be repaid by next April with the remainder due by the end of 2018. Interest and hefty bank arrangement fees will also need to paid and will not be rolled up.
City analysts say Carillion could struggle to buy more time by using ongoing cashflow to pay back the lenders. CMC's Michael Hewson highlighted the contractor has a negative annual cash flow of £300m.
Hargreaves Lansdown senior analyst Laith Khalaf compared Carillion’s travails with that of Royal Bank of Scotland’s aborted sale of Williams & Glyn.
"Potential suitors know Carillion's Canadian exit is a forced sale over a short timeframe and will seek to take advantage by chipping away at the price," Khalaf said.
Carillion’s cash proceeds may be further discounted from the headline price. Similar to other contracts, Canadian projects are complex joint ventures with their own financing. In order to exit these, Carillion may have to pay off bank financing and remit part of the proceeds to partners.
Carillion declined to comment yesterday.