By Noor Zainab Hussain
(Reuters) - Interserve (L:IRV) said it had reached a deal with its lenders to defer a debt payment due early next year and was considering handing them its profitable building materials business RMDK as it works to avert a Carillion-style collapse.
"Interserve continues to be in constructive discussions with its lenders, who are fully supportive of Interserve's business plan and management team," the British construction and services company said in a statement on Friday.
"The key commercial principles on which the Deleveraging Plan is expected to be based have now been conditionally agreed between Interserve and all lenders," it added.
Interserve shares, which have dropped nearly 90 percent this year as it struggled with a weak construction market and more than 600 million pounds in debt, were down 3.4 percent at 10.7 pence at 0941 GMT as early gains evaporated.
Under the debt reduction plan, Interserve shareholders will be subject to a "material dilution" as it will convert "a sufficient amount" of its senior debt into new ordinary shares to enable it to reach its target leverage of less than 1.5 times net debt/EBITDA by the end of 2019.
Carillion's (L:CLLN) collapse in a mass of debt and pensions dues in January forced the government to step in to guarantee services ranging from roadworks to school meals and led to a parliamentary inquiry into the extent to which private companies should be running essential services.
Reading-based Interserve, which employs 75,000 globally and has thousands of UK government contracts to clean hospitals and serve school meals, had decided https://uk.reuters.com/article/uk-interserve-strategic-review-idUKKCN12A0HK in 2016 to keep RMDK because it brought it more international exposure.
RMDK, which accounts for a little less than 10 percent of Interserve's revenue but is relatively more profitable, has been valued by analysts at up to 300 million pounds.
Interserve, which maintains eight out of 10 of Britain's busiest railway stations and cleans 2,490 London Underground carriages every evening, said a portion of new equity will be offered to shareholders and new investors.
But the debt reduction plan was not dependent on a successful public offering and the final form of the plan to cut debt will be announced in early 2019, it added.
Investors took up just 38 percent of British builder Kier Group's (L:KIE) share issue on Thursday, highlighting tough times for the construction sector.
Before Friday's plan was announced, Interserve's combined credit score, which measures on a scale of 100 to 1 how likely a company is to default in the next year, was "1", Refinitiv Eikon data showed.