May Grapples With Whether to Throw Carillion a Lifeline

(Bloomberg) -- The U.K. government is grappling with whether to bail out debt-laden Carillion Plc or risk the collapse of the government contractor that employs tens of thousands of people and works on everything from hospitals to the HS2 high-speed rail project.

Company executives held talks with the government Sunday to ask for the 300 million pounds ($412 million) it needs by the end of the month to stay afloat, the Mail on Sunday reported, without saying where it got the information. A spokeswoman for Carillion declined to comment, and the government declined to confirm the meeting. The Financial Times reported the talks are expected to continue on Monday.

“We’re keeping a very close eye on this,” Conservative Party Chairman Brandon Lewis said on BBC television’s “The Andrew Marr Show” on Sunday. “Hopefully they’ll be able to work with their partners to get the working capital they need to continue providing important services.” Asked about the possibility of a taxpayer bailout, he said “it’s a very commercially sensitive situation.”

Carillion’s struggles pose a conundrum for Prime Minister Theresa May over whether to use public money to assist a private company, or allow it to founder, putting public services and infrastructure projects nationwide in danger.

That’s because the company has contracts with many arms of government, including building roads and rail links, managing housing for the armed services, and running facilities for schools and hospitals. Also in the balance are the jobs of 43,000 Carillion employees worldwide, almost half of them in Britain.

‘Scandalous’

The opposition Labour Party wasted no time in making political capital out of the construction company’s struggles. Labour’s business spokeswoman, Rebecca Long-Bailey, warned of a “serious crisis” last week, while the party’s work and pensions spokeswoman, Debbie Abrahams said on Sunday that it’s “scandalous” the government awarded new contracts to Carillion when it was already struggling.

“This is absolutely scandalous and the government has got a lot of questions to ask. What due diligence was undertaken in terms of the contracts? They have to provide financial viability determination and that seems to have just completely gone out of the window,” Abrahams said in an interview on Sky TV’s “Sunday With Niall Paterson” show. “We need to be prepared to bring contracts back in house, to have them under public ownership” in order to protect jobs, she said.

New Contracts

Carillion won 1.4 billion pounds of HS2 contracts on July 17, a week after issuing a profit warning in which it noted a deterioration in cash flows. The following day, it won a 158 million-pound Ministry of Defense contract.

Government bailouts of private companies are rare in Britain; the most notable in recent years took place in 2008 and 2009, when then Prime Minister Gordon Brown bailed out the country’s banks, leaving the government holding stakes in Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc.

NHS Risk

An indication of the risks May faces should Carillion collapse is the breadth of its involvement in the National Health Service, which is already struggling to contain a winter crisis that’s led to canceled operations and left patients waiting in ambulances. Details on the company website shows it maintains 1 million square meters (247 acres) of health-care facilities, prepares 18,500 patient meals daily and carries out 200,000 maintenance tasks a year. 

It also manages facilities for 875 schools nationwide, helps care for U.K. motorways and maintains 40,000 kilometers (25,000 miles) of highways in Canada.

Sky reported late Sunday that Carillion’s board was making a final rescue appeal to its lenders ahead of a decision to appoint administrators.

Carillion had long-term debt topping 900 million pounds as of June 2017, and a pension deficit of 587 million pounds. Its shares fell more than 40 percent on Thursday and Friday, after rising earlier in the week on optimism about the business plan the company was set to present to lenders. The stock has tumbled 94 percent since the end of 2016.

“Carillion is a major supplier to government so we are continuing to carefully monitor the situation while working to ensure our contingency plans are robust,” the government said Sunday in an emailed statement that repeated its lines from last week. “The company has kept us informed of the steps it is taking to restructure the business.”

To contact the reporters on this story: Alex Morales in London at amorales2@bloomberg.net, Charlotte Ryan in London at cryan147@bloomberg.net.

To contact the editors responsible for this story: Flavia Krause-Jackson at fjackson@bloomberg.net, Bruce Rule

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