Costain brought back from the brink

Stormy meeting of shareholders agrees rescue plan by big majority

Costain stepped back from the abyss of receivership yesterday after a stormy shareholders' meeting approved a planned rescue of the struggling construction and engineering group. An overwhelming majority of shareholders voted in favour as Raymond International, one of Costain's two biggest shareholders, overcame its reservations about the deal and gave the package its approval.

After the vote, the suspension on trading in Costain's shares was lifted and they jumped 10p to 49p in relief that the company had fended off the threat of receivership, before settling to close at 46p.

The extraordinary meeting to pass two resolutions relating to the financial restructuring proposals was described as "stormy and fractious" by shareholders who had been body-searched as they entered a heavily policed QEII conference centre in Westminster. Seeking to minimise bad publicity Costain banned non-shareholders, including the press, from attending the meeting.

From the outset, the meeting was characterised by ill-feeling and secrecy. A small group of anti-road protesters outside the hall was forcibly moved on by a police presence that far outnumbered them. Armed police were positioned on the roof of the centre and protesters were constantly recorded on video cameras.

Costain is involved in the building of the controversial Newbury by-pass and the Cardiff Bay Barrage and is considered by campaigners to have a poor environmental record.

The meeting had been called to rubber-stamp a proposed rescue that will see Intria, a Malaysian construction company, underwrite a three-for- one rights issue to raise pounds 73m and take up to a 40 per cent stake in Costain. Alan Lovell, Costain's chief executive who had faced calls in recent days to resign, said he was already discussing shared contracts with Intria.

The deal had been opposed by Costain's two largest shareholders, Kharafi, a Kuwaiti construction business, and Raymond International, from Saudi Arabia, both of which hold 19 per cent each of Costain's shares. The proposals could see their holdings slip to as little as 5 per cent.

To be approved, the rescue needed a simple majority of votes to be cast in favour. In the event, 76.5 per cent of an 83 per cent turnout were in favour of the package, which was presented by Costain's board as the only plan available for the company's survival.

Alan Lovell said: "We can look forward to continuing to develop our core engineering and construction businesses in the UK and around the world, in particular with our new and existing shareholders in the Middle and Far East, our two main overseas markets.''

One shareholder who attended the meeting said Costain's directors attempted to move straight to a vote on the rescue resolutions but were forced by heckling shareholders to field questions, mainly from private shareholders who were angry at the company's unwillingness to furnish them with adequate information to vote on the proposals.

Shareholders also questioned salaries being paid to Costain's directors despite the poor performance of the company since, in keeping with many of its industry peers, it was brought to its knees by the recession. "You are the most incompetent directors ever," a shareholder said. "Why are you lining your pockets with money when we haven't got a dividend?"

Mr Lovell was paid a basic salary of pounds 180,000 in 1995, while Sir Christopher Benson, chairman, was paid pounds 100,000. The company hasn't paid a dividend since 1992.

Kharafi last week argued for a reprieve of up to three months from Costain's bankers to enable counter-proposals to be drawn up. It said it would consider investing further in the company. Yesterday, shareholders repeatedly called on a representative of the Kuwaiti group to put forward an alternative proposal. None was forthcoming.

Sir Christopher Benson reiterated the company's plea for shareholders to support the plan as the only viable alternative. "If you vote against it there will not be a Costain and you will not be shareholders,'' he said.

Battered by poor investment in property and US mining assets in the late 1980s, and by the wafer-thin margins on contracting work, Costain's shares have slumped more than 90 per cent since they peaked in 1987.