Construction services company Kier Group’s share price plummeted to its lowest point for a decade this afternoon as it announced a plan to raise £264m to pay off debts.
The FTSE 250 firm said the rights issue would give existing shareholders the chance to buy its stocks for 409p each, a 34 per cent discount on yesterday’s closing price.
But the move sent shares diving by 23 per cent today, sinking stock to 579p per share.
The beleaguered outsourcer said it was raising money to slash into its £624m of net debt, which has seen several funds raise their bets against it this month to become the City's most shorted stock.
Funds including Blackrock and the George Soros-backed SFM UK have raised their short positions in Kier recently. But analysts said if shareholders decided to buy the discounted shares today, short sellers may reduce their holdings in the company.
“Lots of net debt is prime for shorting,” David Madden, analyst at CMC Markets, told City A.M.
“But this will act as a deterrent to the short sellers,” he said. “We will probably see the level of short positions in the stock decline.”
Kier is offering existing investors 33 shares at the discounted price for every 50 they currently hold.
The proceeds of the rights issue would “enable the group to accelerate its net debt reduction programme,” it said.
Kier – which is an outsourcer in the services, property and residential sectors – posted a better-than-expected nine per cent rise in profit in full-year profits this year, but it has so not been enough to fight off short sellers, who currently hold 14 per cent of the company’s shares.
Haydn Mursell, chief executive of Kier Group, said: “There has been a recent change in sentiment from the credit markets towards the UK construction sector, with various lenders indicating that they will be reducing their exposure to the sector. This has led to lower confidence among other stakeholders and an increased focus on balance sheet strength.
“The rights issue is intended to address these issues, better position Kier to continue to win new business and further strengthen our market leading positions.”
Ken Odeluga, market analyst at City Index, said the market interest in the company was so high because it was the closest outsourcer to failed construction giant Carillion.
The success of Kier now rested partially on how many investors decided to buy the discounted shares.
"If there is a good take up we might see a long term improvement for the company. If not it’s bad news," he said. Shareholders could expect to know whether the take up was good by early 2019, he said. If successful, that was when “you can expect the short position to start declining”.
“It’s not a brilliant advert for your company going forward but evidently shareholders might decide that a rights issue and taking a hit now might turn out to be better than doing nothing today.”