Energis on the brink of insolvency as National Grid refuses support

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Shares in Energis crashed to 4p yesterday as the former FTSE 100 telecoms group stoked fears it was going under, after confirming it could not meet banking covenants and was considering defaulting on its bonds.

Energis is in desperate talks with its bankers to prevent it becoming the UK's answer to Global Crossing, the collapsed US communications giant. While other former stars of the UK's technology boom have long ago forgotten their brief occupation of the FTSE 100 index, none has seen its fortunes sink as badly as Energis.

The company yesterday proposed amendments to the stringent terms of a £725m loan with a banking syndicate led by Barclays Bank, which it negotiated in December. Last month it said a sudden downturn in orders meant it was close to busting the covenants, which dictate that the debt should be kept at a particular ratio to earnings before interest, tax, depreciation and amortisation.

It also set out a detailed restructuring plan yesterday involving the sale of its loss-making European businesses, in which it has invested £1bn, and some 400 job losses in the UK, on top of 450 already announced. Two board members, Bob Taylor and John Beaumont, are also leaving.

The proposals failed to reassure the City, which marked the shares down 70 per cent to leave the company valued at just £69.5m. Analysts were sceptical as to the prospects of Energis finding buyers for the businesses slated for disposal, and said there was a risk customers would desert the company during the three weeks it is expected to take the banks to respond. Energis's bankers are Barclays, Dresdner Kleinwort Wasserstein and Bank of America.

"If Energis is not paying its bondholders, it's difficult to see much being left for equity holders," said Nick Delfas, a telecoms analyst at Lehman Brothers. "Whatever needs to be done, it needs to be done quickly. If management are leaving, why shouldn't the company's customers follow?"

Energis has already drawn down £605m from its loan facility, and is seeking to draw down further funds so it can continue running its European operations as going concerns while it looks for buyers. It said it would close the operations if it failed to sell them.

"Our UK business is fundamentally sound and reasonably funded if these proposals are agreed with the banks. It will be a winner," David Wickham, the chief executive, said. "There is still very much a desire among the core banks to support us. We have not yet decided not to pay interest [on the bonds] but it's actively under consideration."

The company is also looking to restructure its bond debt, a move likely to see the bonds swapped for equity.

National Grid, which founded Energis and still holds a 37 per cent stake, issued a statement saying it could not be relied on to provide additional financial support. The company has long indicated its wish to exit Energis.

Separately, Colt Telecom saw its shares dive 9.5p, or 18 per cent, to 44p after it said it was cutting 500 jobs and warned that its first-quarter performance would be down on the previous three months.

Colt is among a handful of telecoms groups that has the firepower to buy Energis, but its chief executive, Peter Manning, declined to be drawn on his interest. "I'll look at every opportunity," he said. Mr Manning warned that it was impossible to make forecasts, although he expected a slowdown in the rate of order cancellations this year.