- Shares in FTSE 250 construction giant Carillion plunge as much 60% in early trade.
- Company announces more financial issues, warning it may breach debt covenants.
- Carillion’s stock is the most shorted in the UK right now.
LONDON – Shares in FTSE 250 listed construction firm Carillion dived by close to 60% early trading on Friday morning after it warned that it may breach a number of its debt covenants.
“Whilst we continue to target cash collections, reduce costs, execute disposals and focus on delivering for our customers, it is clear that significant challenges remain and more needs to be done to reduce net debt and rebuild the balance sheet,” Carillion’s Interim Chief Executive Keith Cochrane said in a statement to the stock market on Friday morning.
The construction company, which has been involved in construction projects including the building of the HS1 rail network and the Tate Modern art gallery, saw its shares decline as much as 60% at the opening bell, before a substantial rebound.
By just before 8.45 a.m. GMT (3.45 a.m. ET) the stock is down around 30% to trade at 27.68 pence per share, as the chart below shows:
The company’s stock is the most shorted in the UK, with more than 16% of stock being held in short positions, according to the Short Interest Tracker. That huge short positioning exacerbates downward moves in the company’s stock as investors look to profit from its poor performance.
“The Carillion horror show continues,” Nicholas Hyett, an equity analyst at Hargreaves Lansdown wrote in an email.
“Some sort of recapitalisation was inevitable, but a possible debt for equity swap, with debt even higher than the group had anticipated, is probably as bad as anyone would have guessed,” he added.
“The group has made some progress on asset sales, and it sounds like some cost savings are being made. It’s not what the group expected though, and it’s clearly not enough. It’s also probably irrelevant given the state of the balance sheet, with net debt already many multiples of the group’s market capitalisation.”
Friday’s plunge is by no means the first sign of trouble for the builder, which in July saw shares drop 63% over the course of three days after a perfect storm of bad news, including the stepping down of its CEO and measures to save £80 million. Carillion’s UK managing director also departed.
At the time, Hyett described the measures as like “trying to bail out a supertanker with a soup spoon.”