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Carillion pensioners to swallow stake in company

Ashley Armstrong
Carillion shares tanked last week after it warned it would breach its banking covenants

Around 28,000 pensioners who used to work at Carillion could end up owning a stake in the construction company under plans to keep it afloat.

The outsourcer, which is now worth just a tenth of what it was a year ago, warned last week that it expects to breach covenants by the end of this year following delays to asset sales and cost-cutting efforts.

Carillion’s shares tanked by as much as 64pc on Friday as investors reeled at a third profit warning in just four months.

Analysts now expect a recapitalisation of the business, which is working on the HS2 rail link, is inevitable with a highly dilutive debt for equity swap considered to be the most likely option.

Carillion has said that “some form of recapitalisation” which could include a restructuring of the balance sheet, will take place during the first quarter of next year.

The company’s debt pile is forecast to swell to £925m, compared to its shrunken market value of just £107m. Meanwhile, its pension deficit is also estimated to grow to £800m from its £587m in June.

Earlier this year Carillion’s pension trustees were understood to favour a rights issue as a way of shoring up the retirement scheme. But the stricken company’s share price fall has now made that unlikely.

Carillion

A debt for equity swap would mean the business would be controlled by its creditors, although the pension scheme ranks ahead of Carillion’s lenders Barclays, HSBC and RBS, according to the Sunday Times.

Pension experts have raised concerns that Carillion’s pension scheme may have to be transferred to the Pension Protection Fund (PPF), as part of a financial restructuring.

While long term investors such as Legal & General and Standard Life Aberdeen are nursing heavy losses, hedge funds have made huge profits on the back of Carillion’s troubles.

Blackrock, Kairos Investment Management and Marshall Wace are amongst 12 hedge funds that have short positions equating to 16.2pc of Carillion’s share register. In recent months they have raised their bets that Carillion’s shares will fall even further.

A transfer to the pensions’ lifeboat usually only happens once a company falls into administration, but Carillion could side-step this by following Tata Steel’s rare example of a “regulated apportionment arrangement”.

That pension deal allowed the PPF to take a 33pc stake in the company, paving the way for a merger of its European operations.