City of London investors chronicle efforts to reform Carillion as it headed to liquidation | City A.M.
Carillion executives are under fire again today with the publication of correspondence detailing how City investors tried to change the direction of the failing firm.
As part of the parliamentary inquiry into Carillion’s collapse, investors told MPs of the various corporate strategies they adopted during the contractor’s demise, with some holding onto their stakes and seeking to influence executive decision-making, while others sold up quickly and cut their losses.
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In its evidence to MPs, Standard Life Aberdeen chronicled how it reduced its shareholding from December 2015 onwards due to concerns about how Carillion was managed.
The investment giant told MPs it met Carillion’s board on multiple occasions to raise issues over the contractor’s weakening cash flow and widening pension deficit, but ultimately sold its holding entirely in July 2017.
“It was felt that management was not giving sufficient weight to the probability that trading may deteriorate further, or to the downside risk from this scenario given the high level of debt,” Standard Life Aberdeen said.
“The board showed no inclination to drive the management to change.”
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Meanwhile, Canadian investor Letko Brosseau tried to meet Carillion’s finance director on four occasions but was routinely rebuffed until the company’s first profit warning in July last year. The company said they were prepared to support Carillion after the first profit warning, but sold all of their shares within days of Carillion’s third profit warning in November 2017.
Kiltearn Partners, a Scottish investment manager which held 10 per cent of Carillion’s shares, only sold its final shares on 4 January, shortly before Carillion went into liquidation.
The company had been selling its shares since 3 August after raising concerns about the remuneration of Carillion’s directors, a £845m writedown on the value of three projects, and the thin amount of information provided on the contractor’s finances.
Kiltearn Partners said it had considered suing Carillion to recover its losses if the company had not collapsed, and told MPs there were “clear grounds” for an investigation into whether executives knew, or should have known, about the £845m writedown.
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Frank Field, chair of the Work and Pensions Select Committee, said there was a “disconnect” between the evidence supplied by the investors, and the information provided by Carillion’s bosses, who said their misfortune was brought on by a dispute with joint venture partner Qatar Building Company.
“On the one hand, the Carillion directors told us all was sunny until a bolt of Qatari lightning hit them out of the blue. Their stewardship had, they proudly told us, been adjudged “best in class” by their friends at KPMG,” he said.
“On the other hand, investors were fleeing for the hills, and it appears those who looked closest ran fastest.”