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Carillion issues £170m of convertible bonds to reduce debt

Carillion says it will take advantage of “favourable conditions” in the market to issue £170m of senior unsecured convertible bonds, which will be used to repay borrowing and pay for acquisitions.

Under the bonds, debt will be transferred from Carillion to their bondholders, and over this time, the bondholders will earn interest on Carillion’s debt that they hold as part of the deal.

The bonds, which will be issued by Jersey-based Carillion Finance on the 19th of December, can be converted into ordinary shares in the company within five years.

These shares will represent up to around 9.99 per cent of Carillion’s issued share capital immediately prior to the offering.

Convertible bonds typically have a coupon rate - the interest earnings that the bondholder will receive - lower than that of similar, non-convertible debt bonds.

Consequently, Carillion’s bonds are expected to carry interest payments of 2.5 per cent per annum payable semi-annually in equal instalments.

Funds raised from the sale of the bonds will be used to repay borrowing, as well as funding recent acquisitions and “general corporate activities”, according to the company.

Carillion said that it “continues to have a robust balance sheet with strong cash flow and net borrowing reducing in line with expectations.”

In its H1 results, Carillion saw pre-tax profits grew from £64.2m in H1 2013 to £67.5m in H1 2014. Its group underlying operating margin grew from 5.1 per cent to 5.5 per cent.

Net borrowing stood at £203.6m, down from £270.8m, while committed borrowing facilities were at £850m, up from £802.5m.

High-profile contract wins for Carillion this year include a £75m contract to expand Liverpool FC’s Anfield stadium, as well as the first phase of the £450m Paradise Circus development in Birmingham.

The company was also appointed to the £190m Midlands batch of Priority School Building Programme schools by the Education Funding Agency.

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