Belfast Telegraph

Plans in place if under threat firm Carillion with deals worth £360m does collapse


By John Mulgrew

The Housing Executive says it has "contingency arrangements" in place to deal with the potential collapse of a global construction giant which carries out contracts for the body worth £35m each year.

Construction and services business Carillion's shares collapsed after a profit warning last week, falling 71% amid fears the group will have to launch a debt-for-equity swap to avoid an emergency takeover or bankruptcy.

In July 2016, Carillion - now headed by interim chief executive Keith Cochrane - announced it had been awarded two contracts by the Northern Ireland Housing Executive to deliver maintenance services for its housing stock, worth up to £366m over a period of up to 10 years. It has drafted in accountancy firm EY to help carry out a review of the business as it fights for its survival.

Carillion operates several major contracts with the Housing Executive across Northern Ireland.

That includes work covering around 25,000 houses across Belfast and Co Down.

The firm also deals with Belfast and the south east, in relation to heating maintenance.

A Housing Executive spokesperson told the Belfast Telegraph it "will continue to closely monitor the situation" and it has been "assured by Carillion that there will be no impact on the contracts or service delivery to the Housing Executive".

"The issue for Carillion relates to other construction contracts delivered elsewhere," it said.

"Carillion is currently in contract with the Housing Executive providing a number of services: maintenance, heating, legionella risk assessments and mechanical and electrical facilities.

"The current annual charges from Carillion for all of these services is approximately £35m.

"While we will continue to closely monitor the situation, if any of our contractors have financial difficulties, contract management procedures are in place to ensure all parties work together to maintain the levels of service specified in the contracts and minimise any impact on our service to tenants.

"If a contractor providing any of the above services did become insolvent, there are contingency arrangements in place to cover the period needed to replace that contractor."

Economist John Simpson said: "The performance of a contractor with such a large responsibility for maintenance of such a large number of houses is critical to the meeting of demands for satisfactory standards," he said.

"So long as Carillion continues to trade, then the main concerns are those of the Carillion shareholders.

"If, for whatever reason, it ceased to trade, that would be a concern in ensuring continuity of service. There may be an interest in any takeover or rescue bid."

Last week Carillion suffered a dramatic collapse in its share price after announcing a profit warning which saw almost £600m wiped from its value.

Carillion's new interim chief executive Keith Cochrane said: "We are moving forward with the actions outlined last week.

"Alongside our own efforts, accountants EY will provide support across the business and bring an external perspective to our cost reduction and cash collection challenge. My priorities are to reduce the group's net debt and create a balance sheet that will support Carillion going forward.

"We need to simplify the business and demonstrate that value can again be created for shareholders by focusing the group on its core markets, including infrastructure and property services, in which it has good strengths and leading positions."

Carillion's market capitalisation has gone into freefall, dropping from £826m to around £241m in a matter of days after a warning over earnings and revealed an £845m write-off on construction contracts.

Chief executive Richard Howson stepped down with immediate effect a week ago as the group said it would need to bolster its balance sheet and was struggling to stay within its borrowing limits.

Meanwhile, Carillion was named among firms awarded contracts for the building of phase one of the HS2 rail line in England.

Belfast Telegraph