July 17, 2017 / 6:50 AM / 2 months ago

UPDATE 3-Beleaguered Carillion wins HS2 rail contract, shares jump

* Worth 450 mln stg to Carillion -analysts

* Company review won’t impact HS2 delivery -source

* Hires EY to help with strategic review

* Shares up on news, fell 70 pct last week after writedown (Adds details, background)

By Esha Vaish

July 17 (Reuters) - A consortium that includes Carillion won a 1.4 billion pound ($1.8 billion) contract to help build Britain’s High Speed 2 railway on Monday, offering respite as the builder grapples with the aftermath of a battering writedown.

The company’s shares rose 21 percent to 67.89 pence by 1200 GMT, after Carillion said it and partners Kier Group and Eiffage had won two lots of work for HS2, which is set to link London with the north of England from 2026.

The win follows a torrid week for Carillion, which lost 70 percent of its value after parting ways with chief executive Richard Howson and booking an 845 million pound writedown due to problematic construction constructions.

Carillion linked the difficulty partly to public partnership construction contracts with governments where builders shoulder the risk of cost overruns. In response, it promised to exit such contracts and focus on growing infrastructure areas such as telecoms and rail.

“We expect the UK government’s objective of generating economic growth through investing in infrastructure to continue creating opportunities for us to grow our business,” interim CEO Keith Cochrane said in a statement.

Chris Grayling, the minister for transport, said he hoped Carillion could overcome the challenges.

“We’ve had secure undertakings from all of the members in the consortium that they will deliver that contract,” he told Sky News. “My wish is that Carillion get through their current problems but we’ve made sure that it’s not an issue for these contracts.”

Carillion, which says it is the second largest rail infrastructure services provider in Britain, said stage one of the HS2 contract would run for 16 months and involve a design and a target cost for construction work.

Stage two, seen taking four and five years to complete, will involve the bulk of the construction. Given the project start is some way off, it is undecided what work Carillion will undertake.

ENCOURAGING SIGN

“It is encouraging that they can still win government contracts. Our view remains that (Carillion) will survive but the ownership is likely to change significantly,” Liberum analysts wrote.

The company’s takings from the contract will be roughly one third, which Liberum pegged at about 450 million pounds.

A source close to Carillion said the company’s review of “all options” to shore up its cash position would not have an impact on its ability to deliver work for the project.

On Monday, Cochrane was speaking to investors amid speculation that Carillion may have to raise at least 500 million pounds, possibly through a rights issue. The company on Friday added HSBC to its list of financial advisers and has this week hired accounting firm EY to support its strategic review.

Carillion said it had found ways to reduce average net borrowing, including cost efficiencies, an increased focus on managing working capital and on recoveries and cash collection.

“We are moving forward quickly,” said Cochrane said. “Alongside our own efforts, EY will provide support across the business and bring an external perspective to our cost reduction and cash collection challenge.” ($1 = 0.7644 pounds)

Reporting by Esha Vaish in Bengaluru; editing by Jason Neely and Louise Heavens

Our Standards:The Thomson Reuters Trust Principles.
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