Carillion share price collapse sparks fears Government could be left with cost of NHS contracts

Carillion has seen its share price plummet from 230p a year ago to less than 20p today

Alex Matthews-King
Business Editor
,Josie Cox
Thursday 11 January 2018 19:41 GMT
This week alone shares in the company have plummeted around 22 per cent
This week alone shares in the company have plummeted around 22 per cent (Reuters)

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A dramatic fall in the share price of one of Britain’s biggest outsourcing companies has sparked fears that the taxpayer could be left to pick up the cost of contracts that provide crucial maintenance work in NHS hospitals.

The Prime Minister’s spokesman said today that the Government was monitoring Carillion closely amid fears that it could collapse as the health service struggles to cope with the worst winter crisis on record.

Carillion, which has had to contest with a slowdown in many of its major markets, has seen its share price plummet from 230p a year ago to less than 20p today. The company, which employs 43,000 people worldwide, has also been hit with numerous profit warnings. A gaping pensions deficit and the departure of its chief executive have contributed to the investor exodus.

This week alone, shares in the company plummeted around 22 per cent as investors awaited the outcome of crunch talks with lenders, and as reports surfaced that the Government had made contingency plans for the collapse of the firm.

Up until late last year the NHS was a major source of income for Carillion, generating around £200m a year in revenue.

However, the beleaguered company said that it had inked a deal to offload a significant part of its UK healthcare facilities management business to outsourcing group Serco, helping it to trim its sizeable debt pile. But the transfer is likely to run throughout 2018, meaning that Carillion will still be responsible for providing a significant proportion of essential services – like cleaning, catering and maintenance of dilapidated wards – to at least 15 NHS hospitals throughout the current debilitating winter crisis.

Official NHS data published for the first week of the year showed that 95 per cent of beds were occupied, with many hospitals reporting 100 per cent occupancy. That’s well beyond the recommended safe operating levels of 85 per cent, above which experts warn that patients are more at risk from rapidly spreading hospital infections.

Apart from the NHS, Carillion has a contract for work on the HS2 rail link and is one of the leading suppliers of rail infrastructure services in the UK. It has contracts with the UK Ministry of Defence and scores of companies.

A collapse, financial strategists agree, could send shock waves through most sectors of the economy as well as the public service.

“The Government is really up to its neck in this one,” one senior financial analyst told The Independent.

In October last year, Carillion agreed to some new credit facilities and managed to defer the repayment date for a portion of its existing debt, providing respite for shares, but that proved short-lived.

In December, the company was understood to be in talks with lenders and other stakeholders about further options to restructure debt, but a deal has so failed to materialise.

Financial analysts and strategists said that the firm could try to swap some of its debt for equity which would dilute the value of shareholders’ investments but could prevent it from breaching its debt covenants.

Talks between creditors, The Pension Regulator, government officials and the firm are reportedly set to continue on Friday.

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