Select Page

Construction giant Carillion collapses

by | 15 Jan, 2018

Nordstrom Kohl's Target Macys

Carillion’s market capitalisation shrunk from £2bn in 2016 to just £61m, as its debts exceeded its equity value

U.K. construction firm Carillion is going into liquidation after the company, its lenders and the British government failed to negotiate a deal to save the business, which has been struggling under a massive debt burden of £1.5 billion.

The collapse has generally been attributed to the company taking on ‘risky contracts’ as well as payment delays in the Middle East that hit its accounts, according to the BBC.

Carillion owed £900 million to RBS, HSBC, Barclays, Lloyds and Santander. The banks were considering the possibility of providing “tens of millions of pounds” of short term support to prevent its collapse, but were reluctant to provide it without the support of the government, according to sources. However the government took a hard line on the matter, and ultimately decided that taxpayers could not be expected to bail out a business that was failing mostly due to its private sector contracts.

Carillion is not just any construction company, it is Britain’s second-largest, and provides around 20,000 jobs in the country, as well as being intimately involved in some of the U.K.’s largest infrastructure projects including the forthcoming HS2 high speed railway line.

Carillion also provides extensive support to Britain’s public sector in terms of education and housing. The firm designed and built over 150 schools and provides facility management to 875 schools in total, as well as maintaining 50,000 homes for the Ministry of Defence.

Today Carillion workers have been instructed to keep on working as normal. The new Cabinet Office Minister David Lidington said: “The first priority, the one that I’ve asked ministers and all officials to concentrate on, is actually ensuring that public services continue. So the message to workers is, come in to work today, there’s important work to be done, and you will be paid. The government will pay your wages via the official receiver, not via Carillion.”

Carillion stock had been in free fall since the start of 2017 (see the chart below), but one of the greatest moments of panic came in July after shares fell by 70 per cent in a single day after it announced a major profit warning. While the firms problems grew, hedge funds and other speculators continued to short the stock, and will now have made a killing off its demise. According to analysis from IHS Markit, 18 hedge funds made £80 million from the initial fall in shares, with much more expected to have been made since then.

Amid the distress, Liberal Democrat leader Vince Cable called for an urgent parliamentary inquiry into why Carillion was awarded valuable public sector contracts despite being in danger of collapse.

Related: The rise and fall of Enron

Nordstrom Kohl's Target Macys

Intel stock slides amidst broader concerns for chipmakers in the tech space

Want to learn more about the markets and how to become a better investor?

Download the Invstr App now.

All emails include an unsubscribe link. You can opt-out at any time. ​See our privacy policy.

ALL RIGHTS RESERVED © INVSTR LTD. 2018

Risk Disclosure:
Invstr is a technology platform, not a registered broker-dealer or investment adviser. Invstr does not offer its own recommendations of any security or provide its own research to any user regarding any security transaction or order.
Please note, investing involves risk and investments may lose value. Past performance does not guarantee future results.
Brokerage services are provided by the following:
US-traded securities, including fractional trading, are provided to Invstr users by DriveWealth LLC, a regulated member of FINRA/SIPC. DriveWealth may not establish investment accounts to residents of certain jurisdictions. For more information, including disclaimers, risk and transaction fees click here.
India account traded securities are provided by SIC Stocks & Services PVT Ltd. SIC does not make any personal recommendations to buy, sell or otherwise deal in investments. Investors make their own investment decisions. The services and securities provided by SIC may not be suitable for all customers and, if you have any doubts, you should seek advice from an independent financial adviser. For more information and disclaimers, click here.

Download on the App Store           Download on Google Play

ALL RIGHTS RESERVED © INVSTR LTD. 2018

Risk Disclosure:
Invstr is a technology platform, not a registered broker-dealer or investment adviser. Invstr does not offer its own recommendations of any security or provide its own research to any user regarding any security transaction or order.
Please note, investing involves risk and investments may lose value. Past performance does not guarantee future results.
Brokerage services are provided by the following:
US-traded securities, including fractional trading, are provided to Invstr users by DriveWealth LLC, a regulated member of FINRA/SIPC. DriveWealth may not establish investment accounts to residents of certain jurisdictions. For more information, including disclaimers, risk and transaction fees click here.
India account traded securities are provided by SIC Stocks & Services PVT Ltd. SIC does not make any personal recommendations to buy, sell or otherwise deal in investments. Investors make their own investment decisions. The services and securities provided by SIC may not be suitable for all customers and, if you have any doubts, you should seek advice from an independent financial adviser. For more information and disclaimers, click here.

 

Share This