Balfour Beatty to offload controversial hospital stake

  • @MLeftly

Balfour Beatty, the UK's biggest listed construction company, is looking to sell its stake in one of the country's most infamous Private Finance Initiative schemes.

Chief executive Ian Tyler is gearing up to sell the group's one-third stake in University College Hospital off Tottenham Court Road in central London. The project was heavily criticised when costs soared from £120m to £430m, and it was cited by those who argued that PFI was privatisation by stealth and was doomed to economic failure.

Opened in 2005, Balfour Beatty has decided to cash in on the stake it still holds in the project, which was a redevelopment of a hospital first built in 1834. The company hopes to fetch £60m to £80m.

The parties that hold the other two-thirds, Semperian PPP Investment Partners and FTSE-250 support services group Interserve, are believed to have pre-emption rights. This would mean that they could end up with a 50:50 shareholding, though other major infrastructure funds are thought to be interested.

Construction companies typically took equity stakes in the PFI projects they built when the procurement method was all the rage under the Labour government.

However, they also looked to sell off those stakes within a few years as construction groups like to have plenty of cash on their balance sheet to underwrite projects. The industry often faces cost and time overruns that can lead to litigation and substantial losses, though Balfour Beatty is also quite acquisitive and could plough the cash into takeovers.

Balfour Beatty is mulling the sale at a tough point in its history. Last week the group put 12,000 of its UK construction services staff on redundancy alert.

Mr Tyler has previously stated the group hopes to make cost savings of £15m by 2015. Balfour Beatty is worth more than £1.9bn with a 285.5p share price.