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Balfour Beatty unveils £250m bond issue

Balfour Beatty has announced plans to raise £250m through a bond issue – one of few UK contractors to have done so.

The firm told the stock exchange that it wanted to raise the money to repay a revolving credit facility – a type of loan which allows money to be repaid and then reborrowed – and for general company use.

The five-year bonds, which will be issued around 3 December, will be convertible bonds, meaning that Balfour can change them into shares.

Investors in the bonds will receive payments of 1.875 per cent and 2.375 per cent a year.

Balfour said it wanted to raise money from sources other than bank loans and lock in long-term financing at low rates.

In the first half of this year it issued US$350m (£220m) of notes in a private placement, where the securities are offered to selected investors rather than the entire market.

UK construction firms have tended not to issue bonds although some European contractors, such as Ferrovial and Vinci, have done so.

Royal Bank of Canada Capital Markets analyst Olivia Peters said: “With the UK players it is unusual but there are more and more European players using bonds rather than bank financing.”

She said that favourable rates on bonds and the reduced availability of bank loans had made bonds more attractive to some companies.

Ms Peters added: “In the UK large-scale infrastructure projects are relatively scarce at the moment and the contractors need decent liquidity on their balance sheets to withstand working capital variations and continue paying dividends.”

Liberum Capital recommended that investors buy Balfour’s shares even though it predicted the deal would cut earnings per share by 3 per cent in 2014 and 2015.

Liberum Capital head of research Joe Brent said: “We view this as positive despite the small adverse impact on estimates.”

He said convertibles were attractively priced for the companies issuing them at present and he expected to see greater use of them.

But he added: “It will not help those companies who fundamentally have too much debt.”


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