By Noor Zainab Hussain
(Reuters) - A third profit warning in a year sent Carillion's <CLLN.L> shares tumbling 34 percent on Friday after the British construction and services company said it expected to breach covenants with lenders and it would need to recapitalise.
Carillion, which employs more than 30,000 people and oversees high-profile infrastructure projects, said it must defer the test date for meeting the covenants until April 30 next year and was talking to stakeholders.
"This will require some form of recapitalisation, which could involve a restructuring of the balance sheet. The Board expects to commence steps to implement the chosen option during the first quarter of 2018 and a further announcement will be made in due course," it said in a statement.
Carillion ran into trouble when problems with construction contracts led to cost overruns. The troubles have been compounded by its debt burden, pension obligations and delays in collecting cash from clients.
Shares in Carillion, which also helps to maintain Britain's railways, roads, schools and hospitals, slumped as much as 60 percent in early trading. They were down 34 percent at 27.3 pence at 1027 GMT.
Peel Hunt analysts suspended their estimates for Carillion and said they saw little value currently for equity holders.
Liberum said it expected a debt-for-equity swap and noted Carillion's financial liabilities were more than 500 million pounds higher than the company's enterprise value.
"SIGNIFICANT CHALLENGES REMAIN"
After the financial crisis, British construction companies bid for long-running, fixed-price contracts to keep work coming in. This left them exposed whenever the projects faced delays or bigger than expected costs.
The industry is also suffering from delays in UK public spending decisions after Britain voted to leave the European Union.
Part of Carillion's business is in the Middle East, where winning new contracts had become harder as the region adjusts to lower oil prices.
Carillion's projects include high-profile redevelopment work on London's Battersea Power Station, Liverpool Football Club's Anfield Stadium and Toronto's Union Station.
On Friday it blamed the latest profit warning on delays in selling some public–private partnerships, a slippage in the start date of a "significant" project in the Middle East and lower-than-expected profit margin improvements at a small number of UK Support Services contracts.
"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, Interim Chief Executive Keith Cochrane said.
In October it agreed to new credit facilities and deferrals on some debt repayments. A month earlier it had said it would be in compliance with its financial covenants.
On Friday it raised its expected 2017 average net borrowing to 875-925 million pounds from the 825-850 million range it gave in September and said this, coupled with its latest forecasts, would mean a covenant breach.
Analysts have estimated Carillion's debts including provisions, pensions and accounts payable at about 1.5 billion pounds.
Its market capitalisation of less than 180 million pounds has fallen by two-thirds since July when it booked an 845 million pound writedown on problematic construction contracts, triggering a profit warning and the departure of its CEO.
(Reporting by Noor Zainab Hussain in Bengaluru; editing by Jason Neely and Tom Pfeiffer)