(Reuters) – Interserve Plc’s <IRV.L> shares sank almost 60 percent in value on Monday after the British outsourcing company announced a rescue plan that was likely to see a big part of its debt converted into new equity, potentially handing control of the company to its creditors.
Interserve, which employs 75,000 worldwide and has thousands of UK government contracts to clean hospitals and serve school meals, said on Sunday it would seek to cut its debt to 1.5 times core earnings in a plan it hopes to finalise early next year.
The company’s problems follow the collapse of peer Carillion Plc <CLLN.L> in January and a parliamentary inquiry https://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/inquiries/parliament-2017/carillion-inquiry-17-19 that has raised questions over whether private companies should be running essential public services.
Carillion was liquidated after contract delays and a slump in business left it swamped by debt and pensions liabilities., triggering Britain’s biggest corporate failure in a decade and forced the government to step in to guarantee public services from school meals to roadworks.
Interserve Chief Executive Debbie White reiterated that the company’s fundamentals were strong and that the debt reduction plan, first raised in a refinancing in April, had the support of 10 Downing Street.
Interserve, which is also one of the main builders of UK schools and the largest provider of probation and offender rehabilitation services in England and Wales, warned in November that its debt would rise more than expected this year, hurt by project delays and a weak construction market.
The company said then that it expected year-end net debt in the range of 625 million pounds to 650 million pounds ($795- $830 million)
Interserve’s combined credit score, which measures on a scale of 100 to 1 how likely a company is to default on its debts in the next year, was “1”, according to Refinitiv Eikon data, indicating it was expected to default.
Analysts have said that Interserve’s financial position was hurting its ability to secure new work, with less credit available for construction firms.
The Guardian reported over the weekend that the opposition Labour Party was calling for a temporary ban on the company bidding for public contracts.
Soon after opening in London, shares in the construction and services company were down 58.4 percent at 10.2 pence. As of Friday’s close they had fallen 74.4 percent this year.
(Reporting by Noor Zainab Hussain in Bengaluru; editing by Patrick Graham)