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The Clock is Ticking for those who wish to Short Carillion

By Lucian Miers | Saturday 13 January 2018

Disclosure: The author has a short position in one or more of the shares mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Editor's note: This article first appeared on the Nifty Fifty website early Friday morning before the shares further fell and the company updated including that it “continues to engage in constructive discussions with a range of financial and other stakeholders” and any agreement would likely involve “significant dilution to existing shareholders”. Lucian wrote;

Time is rapidly running out both for support services group Carillion (CLLN), and for those not short the stock. The company has been locked in talks with its creditors for two days now and it looks like the Pensions Regulator will be dragged into the fray today to discuss the way forward for the massive shortfall with the trustees of the fund.

An announcement is due any day now and my guess is that it will be early next week. With the company’s debt priced at under 30% of par value and the government reportedly poised to intervene with 43,000 jobs at stake, the interests of shareholders must be very far from the top of the agenda.

On top of the c. £1.5 billion already owed, the loss-making contractor reportedly needs a further £300 million sharpish. Its disposal programme which planned to raise £300 million has got nowhere near that sum, which is unsurprising given the train wreck balance sheet which carries tangible assets of negative £2 billion.

The recent share price rise, fuelled by hopes of some sort of rescue, seems even to have embarrassed the company which rushed out a statement on Tuesday that; “The Group is not aware of any material developments that support this share price increase”.

That any such developments would have emerged since then is extraordinarily unlikely as is a scenario where creditors will emerge without taking whopping haircuts.

A debt-for-equity swap is pretty much the only way to avoid a messy collapse for Carillion and even that is not a given. To throw the current shareholders an £85 million lifeline is not something that grumpy creditors are likely to countenance. So when the terms are announced shortly, the company is likely to have to go further than the above statement and attach the little or no value tag to the equity, which is normally applied in these situations.

To those who appreciate the reality here, time is running out. The shares should be sold short without delay.

This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and a new shorting piece from Lucian shortly click HERE

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