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Kier's peers won't delight in its credit fears

Tom Fitzpatrick

In October CN invited directors from some of the UK’s largest tier ones to discuss what the contractor of the future might look like.

Among the attendees that day were Sir Robert McAlpine CEO Paul Hamer and Kier chief operating officer Claudio Veritiero.

The topic of lending came up, as we had been discussing how a contractor might change its business model if access to finance was less of a concern.

It quickly became apparent that not only had access to finance become tighter since Carillion’s collapse, but that it was a worsening problem for companies with strong balance sheets – or those that had avoided pitfalls experienced elsewhere.

Surely it was ever thus, I argued (or provocated): “Aren’t lenders always risk-averse when it comes to this industry? Why are things so different now?”

The faces around the table told a story. The situation had been exacerbated by recent events and there was real concern about the impact among both public and private companies.

This appears to be a confluence of circumstances including not only Carillion, but the collapse of others ranging from Lakesmere to divisions of Lagan Construction Group, compounded by Brexit and political / economic instability both here and abroad.

Perhaps it’s the fact that lenders have given up on backing companies that take on so much risk yet continually fail to generate returns worth getting out of bed for.

Ray O’Rourke spoke to CN in the following weeks about Laing O’Rourke’s struggles with UK refinancing and getting its accounts signed off.

He said at the time: “We’re not seen as an attractive sector, which is interesting because we represent 8-10 per cent of GDP. I don’t think it’s tenable that banking institutions can say they don’t want to be involved [with construction].”

He added that corporate failures and lenders withdrawing capital were slowing down processes across the industry: “Three million jobs in the UK rely on construction, and we have nation-building infrastructure to deliver. It is a tragedy to see the industry starved of oxygen like this.”

Famously media-averse, this was an interesting intervention from the Laing O’Rourke boss, one that hinted at frustration at not being able to get things over the line in the way he had previously.

Of course, his company has had its fair share of problems in recent years that will have made its own refinancing negotiations more fraught, but this problem with lending is not restricted to companies who have had internal woes.

There appears to be a concerted shift away from construction by the finance sector.

This presumably reflects not only Carillion’s collapse, but the impact of providing supply chain finance to Carillion’s suppliers which cost the banks dearly this year (and ironically may have helped some specialists stay afloat).

It doesn’t help (though it’s a small part of the problem) that the government has abolished PF2, which may have helped the construction industry foster better links with the world of finance.

So when Kier boss Haydn Mursell tells CN following its dramatic £264m rights issue that “four of our peers” were being put in a similar position by retreating lenders, you could easily change that to ‘at least four’.

This isn’t a few bad eggs spoiling it for everyone; in fact, it’s likely to lead to the failure of more big businesses unless things change.

On Wednesday, the CN Specialists Index 2018 is launched at an event in London. The full report will be online and delivered to CN readers via our 7am breaking newsletter

 

Readers' comments (1)

  • I am Managing Director of iDCC Services Ltd we are a SME predominantly working on government contractors, we have Her Majesty Royal Warrant.

    We was unfortunate to get engaged with Kier's at House of Parliament, all works were complete to a high standard and final account agreed, they simply will not pay the remaining £108K, this has been going on for in excess of 6 months

    i would most certainly welcome the opportunity to discuss with Haydn Murcell why we are being treated this way, when considering their reported pay dates of 54 Days

    iDCC are also a big player in the HMP MOJ contract which now under GFSL is good, although we lost £314K through Carillon.

    Regards Craig Insley

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