The negotiations could be completed by the end of August, allowing the company to publish its long-overdue 1996 results and begin to trade its shares again on the London Stock Exchange following their suspension last November.
Costain needed an infusion of capital, which would put it in a position to bid on several construction projects in Malaysia, said an executive with Renong Bhd, a Malaysian holding company. Renong's chairman, Halim bin Saad, controls a majority stake in Costain's largest shareholder, Intria Bhd. Costain declined to comment.
The construction firm, once one of the industry's largest, has lurched from one financial crisis to another. Its shares fell from over pounds 3 in August 1989 to 46p when they were suspended last year, valuing it at pounds 95.3m.
In July 1996 Costain was bailed out by Intria Bhd, a Malaysian construction firm, which paid pounds 73m for a 40 per cent stake and four seats on Costain's 10-member board. It said net debt was pounds 28m, though most recent data on Costain puts it at pounds 22m, according to IBCA, the credit rating company.
The agreement allowed the creditor banks, which include National Westminster, Lloyds TSB Group and Barclays, to avoid forcing Costain into receivership.
In a brief comment last week, Kim Eng Securities, a Malaysian brokerage firm, said prospects in 1998 for Costain would improve if a financial reorganisation goes through.
It said Costain had an order book worth pounds 500m in the Pacific Rim "which can last until end 1998".