Convincing your lenders to fund a business that is carrying around £1bn of debt, is under investigation by the Financial Conduct Authority and is being watched closely by the government won’t be the easiest of business presentations to deliver.
But this is the daunting task Carillion bosses will face this Wednesday.
It’s D-day for the contractor, which will have to provide a comprehensive plan to convince lenders to throw more money at the troubled business in order to keep it afloat.
Failure to secure this funding could leave Carillion looking to Whitehall for a Northern Rock-style bail-out.
But will the government respond to Carillion’s mayday?
It’s unlikely, says AJ Bell investment director Russ Mould. “Will the UK government really want to get involved in taking a stake in a public company?” he asks. “It’s trying to get out of the Royal Bank of Scotland and its got out of Lloyds.”
But equally, there are tens of thousands of jobs at stake if the UK’s second largest contractor crumbles – so never say never, Mr Mould says.
In order to secure funding from its stakeholders, Carillion will have to convince lenders it can tick a number of boxes in order to heave itself off the floor.
Mr Mould says this includes restoring lenders’ faith in the business after the FCA launched an investigation into its trading updates between 7 December 2016 and 10 July 2017.
“They will need to reassure any debt holders that the accounts are what they seem to be,” he says, and predicts the scope of the business will be narrowed as the contractor focuses on performing well in key areas.
“I suspect they will focus on certain key areas and projects and make sure delivery is done on time and on budget [at a good] margin. They’ll need to look at how they target, price and win business,” he says.
Ultimately, Carillion needs to focus on squeezing as much cash out of the business as possible to keep its head above water – especially as the contractor has a number of fingers in some very big pies, according to Mr Mould.
“There will be customers who have given the contractor long-term contracts and will want to see it thrive and survive,” he says.
According to ETX Capital senior market analyst Neil Wilson, the contractor has to sell off parts of its business in Canada in order to prove it can survive.
“[Carillion] is struggling to sell its Canadian subsidiaries,” he says, adding that it is “important to offload this” to get around £300m from the sale of these assets and get into better shape.
“They can probably sell these subsidiaries, but the question is for what price,” he says. “They might be forced to sell them off on the cheap, which isn’t ideal.”
Mr Wilson offers a slightly gloomier prediction on Carillion’s fate than Mr Mould. “Even if they get their banking covenants in time, from the look of it, the whole business is in a mess,” he says.
Whatever the outcome of Wednesday’s meeting will be for Carillion, the contractor has a battle on its hands to keep afloat and to survive beyond these worrying times.
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