Carillion files for liquidation

Market Analysis /
15 Jan 2018

I’m getting bored of saying it, but yet again we have fresh record highs for US stocks, but the positivity on the back of earnings in the US is not following through into Europe at the moment. The big news in the UK this morning is a stock story as UK government contractor Carillion files for liquidation after last-minute talks with the government failed to find an agreement for a bailout and last ditch funding.

Carillion, who employs around 20,000 people in the UK, over the weekend was asking the UK government for more than £300m in bailout cash to help sure up finances and help with the £600m pension black hole. There are now a lot of questions that will be asked after the liquidation was confirmed and trading on the company’s shares was suspended. Mainly, how were all of the multi-million pound contracts signed in loss-making positions, and why, despite numerous profit warnings was Carillion offered more and more government contracts? The issue of offering private sector firms to produce public sector projects is now a certainty to come up in the commons.

Carillion is responsible for a number of government backed projects such as the HS2 high-speed rail project and also looks after a number of hospital projects amongst others. The £300m payment was needed by Carillion before the end of the month to continue trading, and to help pay the debt payments the company is crippled with. The news, although bad, has seen the FTSE fall lower, but not by huge amounts.

The political tension is now likely to increase as the above point regarding private company’s delivering public projects is brought to fore again. The issue being that with Carillion in such a state the government is left with the issue of whether to bailout and save jobs, or let them firm fail. This will be another stick for Labour to beat the PM with when it comes to Wednesday’s PMQ’s.  The Carillion share price has fallen from 250p this time last year to 14.20p at Friday’s close. The company’s long-term debt was in the region of £900m with a pension deficit that will now have debt with elsewhere of almost £600m.

Elsewhere today the economic calendar is looking particularly quiet, with very little in the way of important macro prints for traders to get their teeth into. With that in mind, it’s going to be a case of looking to the big moves seen on currency markets on Friday after some big moves and more negativity on the US dollar. EURUSD has broken key upside resistance levels over the past week, with the US dollar negativity showing no signs of slowing down.

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