After Carillion, Interserve shares hit by report that UK is monitoring firm

By Alistair Smout

LONDON (Reuters) - Shares in British construction and services firm Interserve plunged on Wednesday after the Financial Times reported that ministers are "very worried" and have set up a team of officials to monitor the company.

The FT report came after the collapse of competitor Carillion on Monday highlighted concerns over the outsourcing sector in Britain. The government said it monitored the health of all its suppliers but it did not believe that any of them were comparable to Carillion.

Interserve shares fell as much as 15 percent but recouped most of the losses after the government's statement and were down 3.8 percent by 1015 GMT.

 

The Financial Times said that civil servants had monitored the contractor since a profit warning in September due to concerns over its financial health, citing government advisers and officials.

"Ministers are very worried about Interserve," said one official, according to the FT report.

A spokeswoman for Britain's Cabinet Office played down the report.

"We monitor the financial health of all of our strategic suppliers, including Interserve. We are in regular discussions with all these companies regarding their financial position," she said.

"We do not believe that any of our strategic suppliers are in a comparable position to Carillion."

KEEPING GOVERNMENT INFORMED

Interserve, which employs around 80,000 people worldwide, said that it was updating the government on the company's progress with its turnaround plan.

"We continue to have constructive discussions with lenders over longer-term funding," a spokesman for the company said.

"We are keeping the Cabinet Office closely apprised of our progress as would be expected."

Carillion entered liquidation on Monday and many of Britain's service providers have struggled after taking on work at low prices for long-running fixed-rate contracts following the financial crisis

Capita and Mitie, as well as Interserve, have all faced problems from these contracts.

Interserve warned of lower annual earnings in September, sending shares crashing by more than 50 percent.

However, a week ago Interserve said that 2018 operating profit would be ahead of forecasts, sending shares to their highest since the September profit warning. The spokesman for Interserve said that last week's update remained the position.

Interserve said that net debt at the end of 2017 will be around 513 million pounds ($707 million).

Carillion said in November it had expected full year average net borrowing in 2017 to be between 875 million pounds and 925 million pounds, but its total debt and pensions liabilities have been estimated as at least 2.2 billion pounds.

($1 = 0.7251 pounds)

(Reporting by Alistair Smout; editing by Guy Faulconbridge/Keith Weir)