Construction groups in trouble as banks tighten lending

“Shares in the construction firm Kier, which is working on major infrastructure projects such as HS2 and Crossrail, have plunged by a third after it announced an emergency plan to raise £264m to cut its debt pile.

The company’s chief executive, Haydn Mursell, said it had been forced to act because banks had performed a “180-degree turn” since the failure of Carillion and were planning to reduce or stop lending to the construction sector.

Mursell warned that other construction companies could be caught out by the sudden credit freeze unless they also took action to strengthen their balance sheets.

Kier, which employs more than 16,000 people and took on Carillion’s share in HS2 and smart motorways upon its collapse, stunned the markets by warning that the risk posed by its £624m debt had increased, forcing it to raise money.

It would go to shareholders for the cash but has secured promises from a group of financial institutions including Santander, HSBC and Citigroup to buy shares if investors did not want them.

Its shares dived by 32.5% to 508p, cutting its stock market value by £329m to £492m.

Kier, in a statement to the stock market, said its debt position had become more risky amid greater reluctance among financial institutions to lend to the construction sector.

“Nothing has changed in our business, but everything has changed in our credit markets during the month of October,” said Mursell. “A lot of our banks were affected by Carillion and for a few months they were reeling from that. Over the summer they talked about wanting reduction.”

He said the banks’ loss of appetite for lending had accelerated recently to the point where they had taken a “180-degree turn” compared with last year, when Kier was able to extend lending facilities.

Mursell added that suppliers were already keeping a close eye on construction companies’ finances and seeking earlier payment where possible, putting further pressure on balance sheets. …”