Interserve Seesaws as Carillion Collapse Said to Prompt Scrutiny

(Bloomberg) -- Shares of Interserve Plc seesawed Wednesday on a report that the U.K. contractor is under government scrutiny after the collapse of rival Carillion Plc.

Lawmakers are “very worried” and a team of officials has been created to monitor the business, the Financial Times reported, citing government sources. Interserve shares fell as much as 15 percent, before rebounding to trade only slightly lower following reassurances from the company and the government.

A spokesperson for the the Cabinet Office said the government doesn’t believe any suppliers are in a comparable position to Carillion and it monitors the financial health of all of its contractors, including Interserve.

Carillion’s demise is prompting renewed jitters in a stock that’s lost 83 percent of its value in the past four years, including a 71 percent drop in 2017. The company said in October it may not meet debt covenants after a further revenue slowdown, though the shares surged last week when Interserve forecast 2018 earnings ahead of market expectations.

“We believe Interserve is very different from Carillion,” Liberum analyst Joe Brent wrote in a note. While the company “clearly” has too much debt, there are businesses to sell and Liberum believes shareholders would support an equity raise. Brent expects Interserve to seek between 185 million pounds ($255 million) and 340 million pounds from investors.

Interserve has facilities management contracts with numerous government departments, including the U.K. Cabinet Office, and also cleans the London Underground rail network. It has recently been awarded deals with the BBC and the Department for Work and Pensions.

The company’s performance expectations and transformation plan are unchanged from last week’s update, a spokesman said by email, adding that Interserve continues to have constructive discussions with lenders over longer-term funding, and is keeping the government appraised.

To contact the reporter on this story: Joe Easton in London at jeaston7@bloomberg.net.

To contact the editors responsible for this story: Simon Lee at slee936@bloomberg.net, Paul Jarvis, Angela Cullen

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