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Kier shares slump on report of discounted sale of homebuilding arm

Kier shares slump on report of discounted sale of homebuilding arm
FILE PHOTO: A Crossrail worker walks in the new Farringdon underground station of the Elizabeth line which opens in December 2018, in London, Britain June 15, 2018. REUTERS/Peter Nicholls/File Photo -
Peter Nicholls(Reuters)
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By Justin George Varghese

(Reuters) – Shares in Britain’s Kier lost another 20% on Friday after a newspaper reported that the construction and services group was rushing to sell its housebuilding business at a discount as the company struggles to cut mounting debt.

The report was the latest setback for the group, which has contracts for major projects including London’s Crossrail link, following a profit warning last week.

The warning sent shares down 40% to their lowest in two decades and wiped off 185 million pounds as investors speculated it may cut dividend payouts and seek to raise more funds after a failed share issue last year.

Kier, whose stock has lost about 84% of its value over the last year, blamed higher costs and persistent pressure on its highways, utilities and housing maintenance businesses.

The Times reported on Friday that Kier, which has been looking to cut debt and simplify its structure, had sounded out advisers on the possibility of selling the housing division for 100 million pounds to 150 million pounds – a price analysts at Liberum deemed “disappointing”, given the company valued it at 291 million pounds in 2018.

The company declined to comment on the media report.

“However, events are moving fast and disposals are likely to be complicated, given the JVs (joint ventures) in Property and Residential, they will be very dilutive,” the brokerage said.

Another housebuilder, Galliford, late last month rejected a 950 million pounds bid from Bovis to buy its residential division, judging it was not in the interests of all shareholders.

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Trade credit insurers Euler Hermes and Tokio Marine HCC, have this week withdrawn cover insuring Kier’s suppliers from any potential losses, The Times reported, adding yet more pressure.

Trade credit insurance covers the risk of non-payment for goods or services.

“The article rightly observes that this may result in creditors demanding to be paid quicker,” the brokerage added.

The company, which had aimed to pay off this year all of the 180.5 million pounds in debt it reported at the end of 2018, said it would likely still be in debt by the end of the year. In March, Kier disclosed an accounting error that pushed up its 2018 debt by 50 million pounds.

“While expected net debt of 36 million pounds seems manageable the total creditor stack is too large,” Liberum said in a note.

Kier’s combined credit score – which measures how likely a company is to default in the next year on a scale of 100 (very unlikely) to 1 (highly likely) – was currently at 2, down from 5 before the warning, according to Refinitiv Eikon data.

Several big British building firms have suffered since regulators tightened rules for contractors operating in the public sector after last year’s collapse of Carillion and the slide of another peer, Interserve, into administration in March.

(Reporting by Justin George Varghese in Bengaluru; editing by Patrick Graham and Louise Heavens)

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