Setback for construction firm
Kier shares hit as £250 million rights issue falls short of target
Kier’s underwriters may have to pick up the shortfall
Construction company Kier Group shares fell after it revealed that just 38% of stock in its rights issue were taken up.
The FTSE 250-listed firm announced the 33-for-50 cash call in November, and was looking to issue 64.5 million new shares at 409p each. However, just 24.3m of the shares were acquired by investors.
Kier will still net £250m as the issue was fully underwritten. Joint bookrunners Peel Hunt, Numis, Citigroup, HSBC Holdings, Banco Santander – will now seek subscribers for the remaining stock at the rights price or else will have to take them on as underwriters.
The company launched the issue to reinforce what it called “strong positions in its growing markets over the long-term”.
The company added, however that it believed the risks associated with the group’s net debt position have recently increased.
In a brief statement, Kier Group’s chief executive Haydn Mursell, said: “Following the completion of the £250m rights issue, Kier enters 2019 with a strong balance sheet which puts us in an excellent competitive position.”
In mid-morning trade the shares were down about 10%.
The company is working on a number of high profile projects in Scotland including the redevelopment of the six-storey Wolfson building on behalf of the University of Strathclyde; the Golden Jubilee National Hospital in Clydebank; and the refit contract for the Burrell Collection.
Scottish Building Federation managing director Vaughan Hart said: “Following the collapse of Carillion and recent issues with Interserve, the latest news regarding Kier is further evidence of an emerging pattern of difficulties faced by very large scale contractors which is damaging for the construction sector and exposing the public sector to a high level of procurement risk.
The Burrell collection refit is among the company’s projects
“An over-reliance by public sector procuring authorities on a small number of these very large contractors creates huge headaches when those contractors get into difficulties.
“We need to see urgent reform to procurement practices to give fuller and fairer access to public procurement opportunities for construction SMEs. By spreading risk and promoting fair competition, that would be a healthier situation for the building industry and the public sector alike.”
Russ Mould, investment director at AJ Bell said the level of take up for the rights issue “shows how little faith shareholders have in the business.”
He added: “This low level of acceptance is a huge embarrassment for the management who probably thought they were being proactive with raising money before more serious questions were asked about the strength of its balance sheet.
“While Kier still gets the full amount of money because the rights issue was fully underwritten by five banks and brokers, its credibility will remain in tatters because of the poor take-up by shareholders. If your investors can’t back you in times of need, when can you count on them?
“You can perhaps understand why Kier is one of the most shorted stocks on the market. It has been targeted by people betting on a decline in its share price because of high debt levels and exposure to an industry beset by contract delays and cost overruns. These same issues also applied to Carillion which went bust earlier this year.
“Kier follows the same model as Carillion in using supply chain finance, whereby suppliers sell their invoices to a bank at a discount and effectively get paid immediately. The bank then collects from Kier later on. This boosts its working capital in the short-term but arguably obscures the true state of its balance sheet.
“A key reason for Kier undertaking the rights issue was to have money at the end of December as customers’ pre-qualification metrics are becoming more stringent and are often based around a year-end cash balance.”