The crisis surrounding the outsourcing firm Interserve intensified on Monday after its shares lost more than 50% of their value, as the government contractor battles to negotiate its second rescue deal this year.
The heavily indebted group, which has thousands of government contracts such as cleaning hospitals and serving school meals, said the rescue plan would mean substantial losses for shareholders as the banks and other lenders that lent Interserve more than £600m take control of the company. It hopes to wrap up a deal early next year.
Interserve’s shares plunged 75% at one point on Monday but they closed down at 53%, at just over 11.5p, giving the company a market value of £17m. At its peak in 2014, the shares were worth more than 700p.
TLenders, led by Emerald Investment, the family office of Scottish entrepreneur Alan McIntosh, the co-founder of pub chain Punch Taverns, are understood to be supportive of the new deal.
The rescue plan is likely to involve the conversion of a large chunk of Interserve’s debts into new shares.
It would be the second financial rescue this year after worsening trading forced the company to seek a deal with its lenders in March. The onerous terms of that deal have prompted Interserve to seek a new refinancing.
Interserve’s woes have sparked fears that the debts could send the company into a downward spiral similar to that suffered by its former rival Carillion, which collapsed in January. It employs 75,000 people around the world, including 45,000 in the UK.
A number of hedge funds have made bets that the share price will fall, by taking out so-called short positions against the firm. Four investors have declared short positions representing nearly 6% of the company’s shares at the end of last week, according to figures from the City regulator.
The Labour party has called for a temporary ban on Interserve bidding for public contracts while it hammers out the rescue plan to avoid a repeat of the Carillion situation which was awarded several government contracts just before it went under.
Interserve announced on Monday morning that it had won a £25m construction contract from Cwm Taf University health board as part of a £36m revamp of Prince Charles hospital in Merthyr, which is funded by the Welsh government. Work is due to start this month and finish in 2021.
The government rejected comparisons between Interserve and Carillion. A Cabinet Office spokesperson said: “We do not believe that any of our strategic suppliers are in a comparable position to Carillion. We monitor the financial health of all of our strategic suppliers, including Interserve, and have regular discussions with the company’s management. The company successfully raised new debt facilities earlier this year and we fully support them in their long-term recovery plan.”
Interserve is one of several outsourcing companies working on “living wills”, which allow other companies to step in on essential public contracts if it collapses. Interserve is expected to deliver the plan to the government before the end of the year.
Britain’s biggest union, Unite, which has 1,200 members at Interserve, called on ministers to set out their contingency plans in the event that the contractor was unable to restructure its finances. The union also backed a temporary ban on Interserve bidding for public sector contracts.
Unite’s assistant general secretary, Gail Cartmail, said: “The financial difficulties that Interserve finds itself in is another dire warning of the dangers of outsourcing public services for private profit. We could be facing Carillion mark two.
“The mistakes made before the collapse of Carillon in January 2018 appear in danger of being repeated – if so, this could see the hard-pressed taxpayer picking up the tab – yet again.”
The Interserve chief executive, Debbie White, who joined the company in September 2017, said: “We are making good progress on our deleveraging plan, which we expect to announce early in 2019. Our lenders are supportive of the deleveraging plan, which will underpin the long-term future of Interserve. The Cabinet Office has also expressed full support for the work we are doing to implement our long-term recovery plan.”
Interserve’s problems stem from the previous management’s foray into waste-to-energy work – an area that it is close to exiting. The firm launched a three-year reorganisation dubbed Fit for Growth in October 2017 to simplify the group and cut costs by £15m this year.