Details of Carillion’s abortive attempt to raise funds by issuing more shares at the same time it posted its July profit warning have been revealed in documents released by the Carillion joint inquiry.
Minutes from a Carillion board meeting in June, coupled with a letter to the inquiry from investment bank Morgan Stanley, show how investment banks doubted the contractor’s ability to provide or deliver a convincing share issue plan.
The documents reveal how Carillion’s management struggled to find a financial institution to underwrite a deal to raise funds through a share offering.
Minutes from 5 July show that the contractor planned to announce a deal at the same time as making a trading update.
However, Morgan Stanley and another investment bank – Stifel – withdrew as sponsors on the basis that the contract writedowns within the trading update would have too severe an impact on the firm’s share price.
The two banks also expressed concerns over Carillion’s senior management, suggesting they could neither “produce nor deliver” a share deal to convince investors to buy stock.
Documents reveal that the banks’ decision left former-chairman Philip Green (pictured) hugely disappointed “both personally and professionally”.
After the two institutions pulled out, minutes show Carillion turned to its “Plan B” of HSBC in the hope it could act as a broker for a deal, possibly in combination with another organisation.
To boost its chances of securing an underwriter, the contractor also vowed to demonstrate a greater focus on “self-help”.
Key to this was a plan to sell off parts of the business over an 18-month period.
The released documents also show the contractor had anticipated it might win HS2 contracts on the basis it was asked to re-confirm its bid by the government, which was taken as an indication that it would be successful.
Despite the news that the banks had refused to back a deal, the minutes show the meeting ended with Mr Green telling the board that work continued towards a “positive and upbeat announcement for Monday [10 July], focusing on the strength of the business as a compelling and attractive proposition, and mentioning the self-help and disposal position”.
This drew the ire of MPs on the select committee joint inquiry, with co-chair Rachel Reeve accusing the board of having failed to “face up to the facts”, and suggesting that Mr Green’s statement showed either a “woeful lack of leadership” or “no grip on reality.”