During the middle months of 2017 may people were wondering about the fate of the major UK government contractor Carillion; more specifically they were asking if the worldwide employer was going to go bankrupt. The signs did not look promising for the worldwide employer. This was especially true during one disastrous period of July when over a mere three days the share prices plummeted, wiping out three-quarters of the value of the troubled company. This disastrous turn of events came after a series of blows to the company; in one week Carillion experienced no fewer than four larger than expected write-downs on projects; at the same time debt increased sharply and a troubling profit warning was issued. Perhaps most damaging of all, these dire financial portents seemed to confirm suspicions that had been held by many knowledgeable parties for years; which were specifically that the giant government contractor’s position was far weaker and based on far shakier foundations than was generally thought.
Carillion held such a position in the world of UK government contracts that at first many were dumbfounded by the revelations which appeared to cast doubt over not only its financial well-being but perhaps also over its future existence. The company, which employed over fifty thousand people all over the world, was the biggest manager of UK military bases and also built roads for the Highway Agency and maintained track for Network Rail, while also being named as a potential player in the construction of the future HS2 line, and was involved in many other projects in the UK, such as a ten year school building deal with Oxfordshire County Council, and abroad, such as hospital construction deals with the governments of Oman and Canada. On the face of, Carillion’s position looked to be assured and this was a fact being banked upon by the many hundreds, if not thousands of subcontractors, whose future prosperity and solvency relied on the continued existence and financial stability of the main contractor. Why then should share prices have fallen by seventy percent over three days and why should people be wondering why such a seemingly large, prosperous and stable company be being associated with talk of bankruptcy and also with talk about drastic action having to be taken to stave off this eventuality?
The sad fact is that Carillion occupied a position that was built on shaky foundations. Perhaps most alarming was the debt situation, which had been growing within the company in the rampant manner of the preceding seven years, rising in fact from £40 million in 2010 to £695 million in 2017, predicted to rise to £800 million by the end of the year. Although Carillion put a brave face on the news, pointing to £4.8 billion of order already and £2.6 billion more predicted for the following year, many experts were predicting that the only solution to Carillion’s problems would be a heavily diluted equity option for £500 million; twice the company’s value following the calamitous three-day period of loss.
Spread betting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.