Kier’s demotion from the FTSE 250 will hurt the embattled contractor’s image among investors, according to analysts.
The contractor will drop out of the index after its share price plummeted following the announcement of a rights issue last week.
CMC Markets analyst David Madden said the move would hurt the company’s image and see some funds dump their shares.
“First off, a demotion does not look good from an image point of view. It’s a move in the wrong direction,” he said.
“Also, from an investment point of view, there are certain funds that only hold shares from FTSE 250 companies.
“It’s a double whammy, because those funds will be selling their current holding and future demand from them [the funds] won’t be there.”
Yesterday, Russell, which manages the FTSE, confirmed that Kier would be removed from the index on Friday 21 December following a quarterly review of the market value of the FTSE 250 constituents.
The decision was based on the market value of the firm at the end of Tuesday, when its share price was 427p. This was a 43 per cent drop from its 752p value at the end of last Thursday.
The plunge in its share price started last Friday when the company shocked the market by announcing a £264m rights issue.
Chief executive Haydn Mursell told Construction News that a rapid withdrawal of credit by UK banks, combined with greater pressure to pay its suppliers more promptly, had forced the company to raise cash by issuing shares.
He added that the withdrawal of credit was happening across the construction sector and four of its peers were facing similar pressures.
Geotechnical specialist Keller will also drop out of the index on 21 December.
Its share price has fallen by around 44 per cent over the past month following the announcement of a £57m restructuring in the wake of losses for its Australian operations.
Kier and Keller have been contacted for comment.