Kier launches £264m rights issue to stave off balance sheet disaster

Kier is looking to raise more than a quarter of a billion pounds to bolster its balance sheet through a rights issue as it creaks under the weight of its debt, a move which has led to its shares diving by more than 32% to 517p.

The contractor, which reported average month-end net debt of £375m at the close of its last financial year in June, said the £264m rights issue was being tabled “to reinforce [our] strong positions in growing markets over the long-term” and better position the firm in the light of what it called “tighter credit markets and more stringent tender pre-qualification requirements”.

It said net proceeds of the 409p-a-share issue – a 34% discount to yesterday’s closing price – would help it speed up its net debt reduction plans and strengthen its balance sheet.

The results of the rights issue will be announced on 20 December, when the 64.5m new shares start trading.

Kier’s financial health has been a cause for concern among the investment community for some time. Building Value analyst Tony Williams described the rights issue move as “a desperate act”.

The rights issue comes five months after Kier announced it was aiming to achieve an average month-end net debt of approximately £250m and a year-end net cash position for its financial year ending 30 June 2021.

The risks around its net debt have increased since then. Lenders were looking to reduce their exposure to the construction sector, the group said, “which may affect the confidence of other credit providers and liquidity in the medium term”.

Kier also said the focus of potential clients and customers on contractors’ balance sheets also meant the procurement process was becoming “increasingly rigorous”, while there was “increasing pressure from stakeholders to shorten supply chain payment terms”.

The group said the rights issue was “expected to mitigate these risks, whilst also allowing the company to accelerate its debt reduction programme and increase the strength of its balance sheet”.

Kier said it was forecasting a year-end net cash position for 2019 and targeting an annualised average net debt to Ebitda ratio of less than one times.

Investors holding nearly a third of Kier’s stock have indicated they will take up their allotment of shares through the rights issue.

Haydn Mursell, Kier’s chief executive, said the recent change in sentiment from credit markets towards the UK construction sector had “led to lower confidence among other stakeholders and an increased focus on balance sheet strength.

Mursell said: “The rights issue is intended to address these issues, better position Kier to continue to win new business and further strengthen our market leading positions.”

Tony Williams said the rights issue was not a surprise as Kier needed to raise capital. “But this is a desperate act and it’s a big, big discount. They’re teetering,” he said.

Williams said it was “unheard of sending out a rights issue in the afternoon. It suggests to me that something has gone wrong this morning, and that would knock my confidence.

“If I was them I would sell their housebuilding business, but I don’t think they will.”

In March this year Galliford Try launched a rights issue which raised around £150m as it sought to cover the mushrooming costs of the much-delayed £550m Abderdeen road project.