Carillion drafts in HSBC for help after week of crisis

HSBC has been appointed joint financial adviser and corporate broker with immediate effect and will work alongside Morgan Stanley, Lazard and Stifel, Carillion said on Friday.

Carillion, which employs 400 at its headquarters in Wolverhampton and 43,000 across the UK, Middle East and Canada, is carrying out a "comprehensive review" into its business.

It announced the move earlier this week alongside a profit warning that saw almost £600 million wiped from its stock market value.

Shares were up over nine per cent on the news at 60p, but still a far cry from the 191p they were trading at last week following days of stock market losses.

Carillion's market capitalisation has gone into freefall, falling from £826 million to around £240 million in a matter of days after it warned over earnings and revealed an £845 million write-off on construction contracts.

Chief executive Richard Howson stepped down with immediate effect on Monday as the group said it would need to bolster its balance sheet and was struggling to stay within its borrowing limits.

He has been replaced by Keith Cochrane on an interim basis while a search is undertaken for a permanent boss.

Analysts at UBS warned on Tuesday that shares could even plummet to zero if Carillion's support services trading is hit, while other experts raised worries the group may not have the funds to restructure – a process that could cost up to £500 million.

Monday's dire half-year trading update saw it downgrade its annual revenue guidance while its overall performance is forecast to be "below management's previous expectations".

After a review by KPMG, the group said it will book an £854 million provision linked to certain UK and overseas contracts, in particular three public private partnership construction projects in the UK and another in the Middle East.

Carillion has not identified which contracts are causing the problems, but some have pointed the finger at its work on the £350 million Midland Metropolitan Hospital in Smethwick, which Carillion revealed in May would open six months late because of wiring and pipework problems. It is also working on the Royal Liverpool Hospital and a £550 million Aberdeen bypass, both of which are running a year behind schedule.

Carillion specialises in railways and roads maintenance and has contracts with the likes of Network Rail. It makes 70 per cent of its money from support services and maintenance contracts for business, local authorities, hospitals and the Ministry of Defence.

To raise cash it is selling of £125 million of 'non-core' assets, pulling out of building work in Saudi Arabia, Egypt and Qatar and getting out of the PPP construction business at home.

And it has warned that its net debt could rise to £800 million this year. It is also weighed down by a £587 million pension deficit.

The company, which split off from the Tarmac group in 1999 and later bought construction firm Alfred McAlpine, has said it is 'looking at all options' in the current crisis.

Meanwhile, Oxfordshire County Council announced on Thursday it was calling an early end to a 10-year deal with Carillion to build schools and supply property management services, which was due to run until 2022 and worth £500m. It will start taking work back from Carillion from next month.