Interserve shares plunge 75% as government contractor seeks rescue deal

Unite the union said UK could be facing 'Carillion Mark Two' and called for public inquiry into events leading to problems at Interserve

Contractor Interserve has confirmed its plans to seek a rescue deal with lenders in order to deal with its debt pile of more than £500m, sending the stock down by more than 75 per cent at the open on Monday.

The group is one of the biggest providers of public services, holding contracts affecting prisons, schools, hospitals and roads.

Interserve said it is “engaged in constructive discussions” with lenders about a deleveraging plan – reducing debt by giving creditors equity in the company. This “could result in material dilution for current Interserve shareholders” – meaning they own less of the company because new shares are issued.

The group is planning to hand over control of the business to creditors in an effort to avoid a Carillion-style collapse. It employs more than 75,000 people worldwide, including 45,000 in the UK.

In the wake of Carillion’s demise earlier this year, the government singled Interserve out for scrutiny, with reports that the Cabinet Office had assembled a team of officials to monitor the group’s financial health.

Interserve holds several major government contracts, for services such as hospital cleaning and school dinners. After reports of the firm’s debt problems emerged over the weekend, Labour called for a ban on Interserve bidding for any further public contracts until a rescue deal is agreed.

CEO Debbie White said: “We are making good progress on our deleveraging plan which we expect to announce early in 2019. Our lenders are supportive of the deleveraging plan which will underpin the long term future of Interserve.

“Our refinancing in April of this year contemplated the development of a deleveraging plan in consultation with our stakeholders and the liquidity injected at that point also gave us the funding to execute our business plan.”

She added that the Cabinet Office was supporting the deleveraging plan, saying: “The fundamentals of our business remain strong.”

Unite, which has 1,200 members working at Interserve, warned that the company is at risk of becoming “Carillion Mark Two”.

Its assistant general secretary, Gail Cartmail, said: “The mistakes made before the collapse of Carillon in January 2018 appear in danger of being repeated – if so, this could see the hard pressed taxpayer picking up the tab – yet again.

“We want to know from ministers what contingency plans are in place should Interserve be unable to restructure its debt-laden finances.”

She said she supported a temporary ban on bidding for contracts, adding: “The moral is that public services should be provided by the public sector, as the record of these outsourcing behemoths has been woeful – it has been proven to be the road to nowhere.”

The union has called for a public inquiry into the Carillion collapse and on Monday Ms Cartmail said “such an inquiry should embrace the events leading up to the present situation”.

Interserve’s share price is now down 91 per cent from its 2018 high of just over £1.23 in January – it fell to 10p on Monday morning.