Interserve PLC (LON:IRV) has confirmed that its shareholders could see a “material dilution” from deleveraging plans the troubled infrastructure contractor is trying to agree with its lenders as it struggles with a £500mln debt mountain.
In a statement responding to recent press reports, the FTSE small cap firm - one of the UK's largest providers of public services – said that it is “engaged in constructive discussions” with its lenders.
Interserve said: “Although the form of the deleveraging plan remains to be finalised, it is likely to involve the conversion of a substantial proportion of the group's external borrowings into new equity, an element of which may be sold to existing shareholders and potentially other investors.”
The group continued: “If implemented in this form, the deleveraging plan could result in material dilution for current Interserve shareholders.”
Interserve said it intends to announce its finalised deleveraging plan, which would be subject to shareholder approval, in early 2019.
The group also said it continues to trade well and in line with its expectations for the year ending 31 December 2018.
CEO says "fundamentals of business remain strong"
Debbie White, Interserve’s commented: "Our discussions with our lenders are a positive step in the process that was agreed as part of the April refinancing. The Cabinet Office has also expressed full support for the work we are doing to implement our long-term recovery plan.”
She added: “The fundamentals of our business remain strong. The deleveraging plan will give Interserve a strong long-term capital structure and provide a solid foundation on which to build the future success of the Group."
Last month, Interserve moved to reassure investors after press reports earlier in the day suggested the construction and facilities management group could be “another Carillion”.
The company refuted the speculation and claiming that it remains on track to deliver a “significant operating profit improvement” this year.
It was responding to claims made by a large, unnamed former shareholder who told the BBC that he was “doubtful if the firm can survive” without a significant cash injection, which he wasn’t convinced would be forthcoming.
In mid-morning trading, Interserve shares were down 54% at 11.18p, bouncing off an all-time low of 6.50p.
Neil Wilson, chief market analyst at Markets.com commented: “With more than £400mln in deleveraging for a company with a market cap of around £10mln, it’s fair to say existing shareholders face wipeout, but at least the business should struggle on. As argued previously, the company will likely survive but a major cash call was inevitable.”
-- Adds share price, analyst comment --