Jarvis future in doubt after news of further write-downs

The future of Jarvis, the construction group, was thrown into doubt yesterday after the company admitted it had breached its banking covenants after massive write-downs and a ballooning of debt.

The future of Jarvis, the construction group, was thrown into doubt yesterday after the company admitted it had breached its banking covenants after massive write-downs and a ballooning of debt.

One well-placed City source said there was a "50 per cent chance" shareholders would now be wiped out in a debt-for-equity swap. "Once you've breached covenants, you're in the hands of the banks" he said, pointing to the recent example of Henlys, the bus maker, which is de-listing after being overwhelmed by debts.

A statement from Jarvis, which saw its shares halve in value yesterday, said that its lenders had agreed to extend credit lines only until 30 July - at which point the company will present its recovery strategy.

One analyst said: "I feel sorry for Jarvis's 9,000 employees. That's the real travesty here. They will be deeply concerned about their jobs this weekend."

Jarvis said cost-cutting was one of the ways it was tackling the crisis, after a drop in turnover from the loss of rail maintenance contracts and lower construction volumes in its accommodation services division. The company said: "The reduction in turnover has left an overhead level that is too high for the current level of activity."

Jarvis, chaired by Steve Norris - the Conservative Party politician - had previously been persistently denying rumours, which surfaced at the start of the year, of it breaching banking covenants. Yesterday the company said its debt was £230m - about £100m more than expected by the City. Jarvis shares closed down 56 per cent to 35p, valuing the company at just £50m. The group was worth more than £800m at the beginning of 2002.

The company said that, in addition to previously announced write-downs, it would need to take a provision in its accommodation business "which could exceed" £115m in the results for the year ended 31 March, which Jarvis will report at the same time as the strategic review.

The accommodation division, which saw its chief executive, Robert Johnson, quit last month, constructs school and university buildings. It is thought the company has had to re-evaluate the revenues on work it had booked. In addition, Jarvissaid it would have to take a £15m write-off in its road-building business. In rail, its third arm, Jarvis announced that it had reached a settlement over disputed work it had done for Network Rail. The deal will see Jarvis receive a cash payment of £30m. However, the money is less than Jarvis had been seeking, requiring a further £26m charge to the 2004 accounts. The company warned that more charges should be expected over other rail disputes that are still outstanding.