Kier chief executive Haydn Mursell has claimed that at least four other major UK contractors will struggle to get credit from banks.
Speaking to Construction News following Friday’s announcement that Kier would issue £264m of new shares in response to banks pulling out of the sector, Mr Mursell said other contractors faced the same problem.
“One thing the banks said was their desire to reduce [credit] facilities was common across the sector, and one [bank] was very specific that four of our peers were being treated similarly. This is a sector-wide issue.”
He added: “Is this going to affect other similarly capitalised businesses in the sector? Absolutely.”
The anti-construction sentiment among lenders had become more prevalent in recent weeks, according to the Kier boss.
“We released our results on 20 September, which were very well received, and within two to three weeks of that – so early October – a number of banks had discussions with us and some of the more assertive ones told us they didn’t want to have any more exposure to the sector,” he said.
This meant reducing credit available to construction companies “in very short order”, Mr Mursell added.
Carillion was a “significant” reason for the banks pulling out of the sector, he told CN, after lenders including Santander, HSBC and RBS lost tens of millions in the contractor’s collapse in January.
Mr Mursell said it had taken nine months for the banks to first get through realising the value of their losses and then “assess things and decide how to prevent that happening again”.
Poor performance by other contractors had also put banks off lending to the industry.
“There have been others in the sector that have seen turbulent performance and that’s not going to help the overall sentiment,” Kier’s CEO said.
Some banks had a “gloomy” outlook for the UK economy in 2019 because of Brexit, Mr Mursell noted, which had added to their downbeat view of UK contractors’ prospects.
Aside from lenders pulling out, which put added pressure on the liquidity of contractors, firms were also facing demands to pay their suppliers faster, he continued.
“That has working capital implications. You need to have the cash on your balance sheet to manage your way through that working capital cycle.”
Pressure to pay more promptly was coming overwhelmingly from public sector clients, the chief executive told CN.
Private clients were not applying the same pressure because they better understood the business model used by tier ones like Kier, Mr Mursell argued.
“They recognise that the working capital dynamic [holding on to payment from clients] in building allows us to operate with very modest margins.”
On Friday the construction minister Richard Harrington told CN that the government had to “stop companies financing themselves with money that effectively belongs to other people”.
Responding to the suggestion, Mr Mursell said: “I’d be happy to explain it [Kier’s approach to payments] to him if he ever wants to discuss it with me.”
Kier had not lost out on any contracts because of its payment terms, Mr Mursell insisted, but the company was facing much closer scrutiny of its balance sheet and financial health.
By raising the £264m through the rights issue, Mr Mursell said he hoped such discussions with prospective clients would no longer be necessary because Kier’s balance sheet would “speak for itself”.
The CEO said he was also “very keen” to improve the speed of Kier’s payments of invoices, which averaged 57 days, adding that the rights issue put the company “in a very strong position” to do so.