HS2 announcement helps Carillion weather storm, while government seeks assurances

Over the last week, Carillion – the construction giant – has been in turmoil. After the company issued a profit warning, a series of influential investment funds betted against the company’s stock which abruptly tumbled by 39%. Richard Howson, the company’s chief executive, stepped down and there was talk in the city of the firm being on the verge of needing a bailout.

Today, however, there was better news for the company. The government announced this morning that a joint venture, which includes Carillion, has won the bid to design and build the controversial £56bn HS2 rail link. It is understood this translates to a £450 million windfall for Carillion.

The company’s shares jumped 23% by lunch on this news, but are still well below their pre-profit warning value.

It has since emerged that the government sought assurances from Carillion’s partners in the bid that, should the company fold, they would be able to step in and deliver on the work if necessary. A spokesman for HS2 Ltd said:

"Obviously in the light of last Monday's announcement by Carillion, HS2 has carried out additional due diligence and sought re-assurance of both it and its two partners in the joint venture - Kier and Eiffage - that they remained committed and able to deliver the contract.

"Each company's boards have both given that assurance and confirmed that they underwrite the performance of each other in delivering the contract. And that is the key point. HS2, of course, will continue to monitor the situation."

Carillion has appointed consultants from EY to conduct a strategic review of the business. Interim Chief Executive, Keith Cochrane, said that the company was taking immediate action to reduce its debts and increase cashflow.

Investors were further spooked when it emerged that the firm plans to raise a significant amount of funds through a share sale, which would dilute the stake of the company current investors own.