The problems at Interserve are well documented and have echoes of Carillion that ended up in liquidation early in the year. Carillion was owed huge sums of money in the Middle East and was pursuing contracts at all costs. Interserve is not in quite the same situation. However, it does have £600m+ worth of debt and it is seeking refinancing. The banks will convert their debt to shares, at a massive discount, effectively handing control to its creditors. The shares have now fallen by 80% in the year. Read the company's press release here
Interserve is a major contractor to the British Goverment, in fact it is bigger than Carillion with 75,000 employees worldwide and many of its contracts are loss making.
So what will happen? It is worth noting that Carillion was, in effect, bailed out by the government in that most of the contracts were moved across to other companies and the government promised to fulfil these. Thousands of jobs were saved as a result. They called it a liquidation as there was no real money for it to continue to trade and it would not look good if the government was, in effect, funding an insolvent company.
Interserve announced on Monday it had been awarded a £25m contract from Cwm Taf University Health Board as part of a £36m pound redevelopment of Prince Charles Hospital in Merthyr in Wales and this has resulted in a bump up for its share price. The Government has also said that it would continue to grant it contracts. Without the government saying it would be awarding it contracts in the furture would mean certain collapse.
It is likely that there will be an increase in infrastructure spending in the future and there may be end in sight for austerity so they are best positioned to take advantage of this.
Brexit has dominated the debate these last few months and another collapse of a major goverment contractor would not be good news. Are they too big to fail?
If you are a supplier to Interserve then read our page re Carillion if you fear the worst.