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Galliford seeks funds after collapse of partner Carillion

By Esha Vaish
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FILE PHOTO:Construction takes place on the Western Peripheral Route in Aberdeen

FILE PHOTO: Construction takes place on the Western Peripheral Route in Aberdeen, Scotland, Britain January 17, 2018. Picture taken January 17, 2018. REUTERS/Russell Cheyne /File Photo

By Esha Vaish

(Reuters) - British construction group Galliford Try <GFRD.L> is seeking additional funding to cover the costs of a joint venture to build a major ring road in northern Scotland after the collapse of Carillion Plc, its partner on the project.

Galliford said it will raise 150 million pounds ($208 million) from investors in coming weeks after Carillion's <CLLN.L> demise in January increased its cash commitments on the Aberdeen Western Peripheral Route.

The surprise cash call sent Galliford's shares down almost 20 percent to their lowest level since mid-2016 at 772.5 pence, giving it a market valuation of about 640 million pounds.

"If (the cash call) draws a line under all of its legacy issues within construction it could be a defining event, but recent events only make investors increasingly wary of risks within contracting businesses," Canaccord Genuity analyst Aynsley Lammin wrote in a client note.

Raising the additional cash would ensure Galliford did not divert money from its other businesses to cover a funding gap, which is expected to be more than 150 million pounds, the company said.

It also booked a 25 million pound charge on the back of Carillion's liquidation for the six months ended Dec. 31, 2017, with first-half earnings per share falling 9 percent to 56.3 pence per share.


DIVIDEND CUT

The Aberdeen project, on which Balfour Beatty <BALF.L> is also a partner, fell behind schedule and rose above budget, one of the factors that helped tip Carillion over the edge.

Carillion collapsed on Jan. 15 after its banks halted funding, raising questions about the future of its 43,000 employees and the 450 contracts, ranging from school meals to roadworks, it was working on.

Several British builders have been hit by writedowns and warnings in the past decade as rising wages and unexpected costs on fixed-price contracts with thin margins led to losses.

Galliford told Reuters in September it would focus on contracts that lowered risks for builders after writedowns on big fixed-priced infrastructure projects contributed to a 57 percent drop in its annual profits.

The group, which also builds houses and works on regeneration projects, said on Wednesday the extra capital would strengthen its balance sheet and allow its units to pursue "growth opportunities".

The fundraising has been fully underwritten by HSBC and Peel Hunt on a standby basis, with Rothschild acting as financial adviser.

Peers Capita <CPI.L>, Mitie <MTO.L> and Interserve <IRV.L> have all issued warnings in recent times.

Galliford also declared an interim dividend of 28 pence per share, down from 32 pence a year ago.

Peel Hunt analysts cut their full-year dividend estimate by 16 pence to 84 pence.


(Reporting by Esha Vaish, additional reporting by Radhika Rukmangadhan in Bengaluru; Editing by Edmund Blair and Kirsten Donovan)