Kier's lacklustre fundraising leaves banks on the hook

* Investors take up just 38 pct of share issue

* Cool response follows troubles at Interserve (Frankfurt: 860509 - news)

* Woodford takes up only half of rights from issue- source (Adds details on debt, banks, investors)

By Arathy S Nair and Noor Zainab Hussain

Dec (Shanghai: 600875.SS - news) 20 (Reuters) - Investors took up just 38 percent of British builder Kier Group (LSE: KIE.L - news) 's share issue on Thursday, highlighting tough times for the construction sector and leaving banks on the deal scrambling to offload the rest.

Shareholders' cool response to Kier's fundraising comes as other outsourcing companies have been showing signs of strain.

Interserve shares fell sharply last week after the support services group said it was in rescue talks. Another rival Carillion (Frankfurt: 924047 - news) collapsed early this year.

Kier, which has contracts for major construction projects in Britain, including London's Crossrail link, last month announced it would offer 64.5 million new shares at 409 pence each to raise 264 million pounds to bolster its balance sheet.

But the low level of take up from shareholders sent Kier's shares down as much as 13 percent in early trading to a 15 year low. The stock, which is down 64 percent this year, was trading down 8.5 percent at 352.4 pence at 1243 GMT.

Bookrunners Numis Securities, Peel Hunt, Citigroup (Swiss: C-USD.SW - news) , HSBC and Banco Santander (Amsterdam: 817651.AS - news) believe it is unlikely that they can find subscribers for the remaining shares by a deadline on Friday, Kier said.

Numis shares fell more than 6 percent.

The bookrunners will spend about 115 million pounds to buy 28.1 million new shares, with sub-underwriters buying up 12.1 million new shares for 49.4 million pounds, according to Reuters calculation based on Kier's statement.

Peel Hunt said separately the banks were now looking to sell roughly 17.33 percent of Kier shares to institutional investors. The price for the placing is expected to be between 360-375 pence per share.

Kier's biggest shareholder Woodford Investment Management decided to take up only about half of its rights from the offer, a source with knowledge of the matter told Reuters.

The investment house, owned by fund manager Neil Woodford, has a 15.41 percent stake, followed by Standard Life (LSE: SL.L - news) and Blackrock Advisors, according to Refinitiv Eikon data.

Woodford Investment Management declined to comment.

When Kier announced the fundraising last month, the company said banks were looking to cut their exposure to the British construction market because of a change in sentiment from the credit markets.

The company said last month that its trading and outlook for 2019 were in line with its expectations. It had said earlier that its order books and development pipelines remained strong, building on a higher-than-expected rise in annual profit reported in September.

HIGH DEBT BURDEN

Peel Hunt analyst Andrew Nussey said: "The principal reason for the raise was the risks associated with the perception that net debt was too high."

"These risks had increased significantly in the period after the FY18 results."

Kier's net debt stood at about 624 million pounds at the end of October, according to the company, which also said the majority of its banking facilities are committed until 2022.

Cash, cash equivalents and overdraft at the end of June fell 34 percent to 330.9 million pounds according to Kier. The company said cost cuts for 2018-2019 would help to boost cash flow by at least 20 million pounds in full year 2020.

"We continue to expect a net cash position in June 2019. The debate will now focus on the other liabilities ... in particular, there will be questions about the treatment of JV debt," Liberum analyst Joe Brent, said.

Short interest in Kier has risen to 15.68 million, or 9.7 percent of the outstanding shares as at Dec. 18, from 1.36 million, or 0.8 percent, at the beginning of 2018, FIS Astec Analytics short interest data showed. ($1 = 0.7896 pounds) ($1 = 0.7873 pounds)

(Reporting by Arathy S Nair and Noor Zainab Hussain in Bengaluru and Pamela Barbaglia and Dasha Afanasieva in London; Editing by Sai Sachin Ravikumar and Jane Merriman)