Troubled British support services provider Interserve Plc rejected a rescue plan proposed by its biggest shareholder, the United States based hedge fund Coltrane Asset. The rejection of a proposal by the company, one of the government's largest contractors, raises the risk that it could be pushed into administration.
Recently, the stressed company had said that it was considering a proposal by the shareholder to reduce debt, which involved issuing £110 million of new equity. According to the plan, 55 per cent of the company's equity will be held by creditors and 37.5 per cent by the shareholders. To avoid the possibility of the company being put into insolvency, Coltrane would bridge any short-term funding gap with £66 million of new debt. The asset management company had also proposed the removal of eight of the company's directors, however, had supported Chief Executive Debbie White.
Coltrane had earlier rejected debt-reduction plans proposed by Interserve's lenders, including hedge funds and major UK banks such as RBS and HSBC, which involved issuing of new shares worth £480 million in exchange for writing off debts. This would have reduced its net debt to around from £650 million to £275 million and is endorsed by the board. This plan will be put to the vote on 15 March, and many shareholders have threatened to vote down the proposal as they fear the initiative will wipe out almost all their shares.
In response, the company's board has urged shareholders to back its debt for equity which will enable the management to offer a stable business platform. However, the administration further said that "remains open" to new proposals which could provide a solution for the liquidity and a deleveraging problem. Interserve chairman Glyn Barker has asked the shareholders, who saw the company lose 90 per cent of its value in 2018, to support the management's plan which it considers to be "in the best interests of Interserve." He further informed that the board unanimously support the plan and was also "actively preparing" alternative plans to ensure smooth functioning in case shareholders shoot down the proposal. Amid the resistance, shareholders like Aberdeen Standard Investments, which owns about 6.9 per cent of equity, still support the debt-for-equity swap.
Interserve, which employs 65,000 people globally, has hundreds of public sector contracts and provides services ranging from hospital cleaning to serving school meals. Interserve's high level of debt has become the centre of a standoff between creditors and shareholders over its future after fellow outsourcer Carillion collapsed last year under a weight of debt and pension dues.
The company's two-thirds sales come from the British government and employ 45,000 colleagues in the UK, almost twice the number of employees as Carillion. The difficulties for the company started in 2016 following miscalculated acquisition and a failed entry into energy from waste plants, taking the company's debt to £738 million, overshadowing the £27 million worth of equity.
Recently, the company reported its results for the financial year 2018. The revenue decreased by 10.7 per cent to £2.9 billion against £3.25 billion last year, reflecting a fall in the UK construction. Net debt also increased to £631.2 million from £502.6m in 2017. The company also noted that the country's construction market remains volatile because of Brexit uncertainty.
The company has warned that it is facing cash shortfall running into multimillions and this could threaten payments to its stakeholders. If the issue is not resolved at the earliest, a danger of being pushed into administration looms over the company and risks the employment of thousands of people.
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