Kier chief executive Haydn Mursell has said the firm’s banks and lenders have “changed their position” rapidly after deciding to cut exposure to the entire construction sector.
In a conference call to investors, Mr Mursell said the group made the decision to launch the £264m rights issue after a “significant change” in the credit markets.
Speaking to analysts, the chief executive said: “UK clearing banks have corporately made a decision to entirely extinguish or remove their exposure to our sector, it is what they told us.
“Many [ banks and lenders] were impacted by the liquidation of Carillion, they have seen that the sector is quite turbulent and they have decided to reduce their exposure.”
Probed by a private investor on the effect that the rights call has had on Kier’s share price today, Mr Mursell said: “I am, like you, a shareholder and am sitting on paper losses, it is hard to predict a timeframe for a price increase.
“It is our anticipation that we will raise £250m for the company as a result of this measure.”
One analyst suggested using a rights issue to bring in cash was “hugely dilutive [to the share price] and very expensive”.
They added that it would have been preferable to see the company deal with its working capital pressure and debt problem by scaling back growth and selling some of their property development assets.
Mr Mursell said every option had been considered by the board but there had not been enough time to carry out the sale of the assets and secure a decent price for them.
The company generates a 25 per cent return on the capital invested in its property assets, Mr Mursell added, and said that selling such an operation would be “value destructive”.
Finance director Bev Dew said the £254m would be used in two ways.
Around £180m-£200m will be used to cut the company’s net debt. The remaining £50m-£70m will be used for working capital, meaning the company will speed up payments to suppliers.
Clients are increasingly demanding contractors pay their suppliers more promptly, Mr Mursell said, and suggested 28-day terms might be mandated for public contracts or that the use of project bank accounts could be increased.
However, Mr Dew added that Kier’s early payment facility, which allows suppliers to get paid in 21 days for a percentage fee, will be retained, as the company believed it gave them a “competitive advantage” against other contractors.