Jarvis to collapse without sale of Tube Lines stake

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The Independent Online

Jarvis, the stricken former private finance initiative (PFI) group, warned shareholders yesterday that it could cease trading in a matter of weeks if a refinancing deal is not agreed with its banks.

The company will announce the sale of its universities accommodation business today as another step in its rehabilitation, having yesterday announced a £25m property disposal to Network Rail to boost its working capital position.

But the company left shareholders in no doubt that unless they approved yesterday's property deal and management concluded further disposals, including its stake in the London Underground Tube Lines consortium, it faced collapse by the middle of January.

A statement said: "In the absence of a refinancing, emergency funding of working capital would be required by the second half of January 2005. Such funding cannot be guaranteed, nor can its terms, which may be materially disadvantageous to shareholders. If such support were not forthcoming, the group would be unable to continue to trade."

Under its new chief executive Alan Lovell, the company has embarked on a complex set of discussions regarding a number of disposals which its banks, mainly Royal Bank of Scotland and Barclays, have demanded as a condition of continuing to support the business and agreeing to a refinancing. The company has debts of £230m-£240m and an equity value of just £12.5m.

Mr Lovell has also started a new business plan that will see Jarvis focus on its UK rail and road maintenance business. It is in talks to sell its European roads business for about £30m and its stake in Tube Lines, the consortium that operates parts of the London Underground system, for more than £100m.

Without the completion of these disposals and a successful exit from a number of troublesome PFI construction contracts, the company will struggle to survive.

Although the situation is dire, Mr Lovell remained confident the necessary transactions could be completed in time and that a new business plan could be implemented.

He added: "A month ago I was talking of targeting £30m of further savings. These have now been identified and implementation is under way. A month ago we identified the issue of construction contracts with our accommodation and services business and the question of how we deal with that. We're now in advanced discussions with our various partners and progressing towards a settlement on those.

"Meanwhile, European roads and the Tube Lines sales have been progressing towards an end-of-year signing. We are in regular discussions with our banks who are generally positive towards the progress we're making."

Today's disposal of Jarvis's Universities Partnership Programme business will be for less than £5m but follows another small deal announced on Friday, the sale of its remaining PFI business, which Mr Lovell has heralded as important progress in reshaping the stricken company.

The company said yesterday it continued to operate within its debt facilities but headroom was limited. "The directors are in discussions with the core lenders to secure longer-term core financing arrangements for the group," it said.

Mr Lovell was appointed in mid-October with the blessing of the company's banks to try to stop the business going bust. He has successfully transformed the fortunes of Costain and Dunlop Slazenger in the past.

If a refinancing can be agreed, Mr Lovell believes Jarvis has a sustainable future as a road and rail maintenance business in the UK. Once stabilised, he believes he can bring in strategic partners to invest in the group.

"Today's announcement marks a very important step in our strategy. A great deal remains to be achieved but we are confident of a satisfactory conclusion," Mr Lovell said.