Following a string of profit warnings over the past year and the failure of talks with its lenders and the government, the construction and services firm confirmed its collapse on Monday.
The company said despite considerable efforts, discussions to secure funding have not been successful and has therefore decided to make an application to the High Court for a compulsory liquidation of the business.
Its struggles have stemmed from losing money on big contracts and running up large debts.
Carillion’s collapse will mean the government will have to provide funding to maintain the public services run by the contractor.
The group is a major supplier to the government with projects including the HS2 high speed rail line, schools and prisons.
Contracts, joint venture partners and lenders are now hanging in the balance as a result of Carillion's demise.
Carillion has a contract with Openreach, the network division of BT Group plc (LON:BT.A), to provide maintenance, extension and repair work for the UK’s telephone and broadband infrastructure. In February of last year Carillion signed a three-year extension to its agreement with Openreach until the end of 2021.
The company is the second largest supplier to Network Rail. In November it was awarded two maintenance contracts on Network Rail’s Midland Mainline upgrade programme.
Just days after a shock profit warning in July, Carillion bagged a £1.34bn contract for building works on the new HS2 railway, which will link London with the north of England from 2026.
Kier Group PLC (LON:KIE), which works on HS2 and the Highways England smart motorways programme with Carillion, assured investors that won’t be adversely affected because it had put in place contingency plans for each of the shared projects as the collapse had been on the horizon for some time.
Prison and defence
The company maintains about half of the UK's prisons along with about 50,000 homes for the Ministry of Defence.
Balfour Beatty and Speedy Hire
In a statement today, Balfour said it would take a hit of up to £45mln from the collapse of Carillion.
Lenders to lose millions of pounds
Carillion’s lenders will also take a hit from the company’s liquidation.
Liberum analysts estimate Carillion owes about £1.5bn to Royal Bank of Scotland Group PLC (LON:RBS), Barclays PLC (LON:BARC), HSBC Holdings PLC (LON:HSBA), Lloyds Banking Group PLC (LON:LLOY) and Santander.
“Crudely, the banks rank ahead of the trade creditors and employees in a liquidation,” Liberum said.
“However, we would expect the banks to lose hundreds of millions of pounds. This will inevitably reduce their appetite for lending.”
Collapse presents silver lining for sector peers
Carillion’s demise inevitably provides contract opportunities for sector peers, according to Liberum.
Liberum thinks there may now be an opportunity for Serco to acquire the remaining healthcare assets, or even other assets.
Costain and Kier could also potentially win more road works in England.