UK-based construction group Carillion has begun insolvency proceedings, sparking concerns about the future of major UK infrastructure projects.
The firm failed to reach an agreement with lenders to save the company, which had been struggling with debts of more than £500 million ($689.1 million; €561.8 million), in addition to a pension deficit of nearly £600 million, following expansion into Middle East construction projects and UK PPP cost overruns.
Carillion had been in the throes of a strategic review and was aiming to secure a total of £300 million from disposals by the end of this year. However, its 2017 interim results released in September noted “PPP equity disposal phasing and contracts traded at zero margin”. An attempt to secure a bailout from the UK government failed to materialise following talks over the past few days.
“It is regrettable that Carillion has not been able to find suitable financing options with its lenders but taxpayers cannot be expected to bail out a private sector company,” said David Lidington, minister for the Cabinet Office. “Since profit warnings were first issued in July, the Government has been closely monitoring the situation and has been in constructive discussion with Carillion while it sought to refinance its business. We remained hopeful that a solution could be found while putting robust contingency plans in place to prepare for every eventuality.
“Since its inception in the 1990s, private finance has helped to deliver around £60 billion of much-needed capital investment in infrastructure in the UK across a range of projects and we will continue to maintain partnerships with responsible firms in future.”
Lidington added that public sector contracts will either be awarded to alternative contractors or be brought in-house.
A week after July’s profit warning, Carillion was awarded a contract alongside Kier Construction and Eiffage to build parts of the UK’s HS2 rail line worth £1.4 billion. Kier said it has put in place contingency plans and expects no adverse impact. It has also been working with Carillion on a smart motorways scheme.
Listed fund HICL said it has also been developing contingency plans following Carillion’s troubles, which had provided management services to 10 of its PPP portfolio companies, representing 14 percent of its portfolio value. HICL said the plan has been activated and it is confident going forwards.
DIF declined to comment on its Irish joint venture with Carillion, through which they closed on a £190 million schools PPP in 2016, with the fund manager believed to still be analysing the situation. Construction on the projects has been completed in recent weeks. DIF’s investment came through its €1.15 billion DIF Infrastructure IV vehicle.
Balfour Beatty and Galliford Try, partners with Carillion on the £550 million Aberdeen Western Peripheral Route contract, have said they will pick up the shortfall left by Carillion on the project, estimated at around £60 million to £80 million. Amey Group will continue to maintain housing services for the British Army, which it had been delivering alongside Carillion.
Carillion’s equity value in financially closed PPP projects stood at £46 million, as at the end of June last year.