The award of a new public sector contract to Interserve has attracted controversy just days after the infrastructure and services firm announced a recovery plan that would seek to pay its debts by issuing new shares.
It was announced on Monday that Interserve has been awarded a £25m contract by Cwm Taf University Health Board, as part of the next phase of the £36m redevelopment of Prince Charles Hospital in Merthyr, which is funded by Welsh Government.
Interserve will also deliver the provision of a new staff changing area within the courtyard; construction of new plant rooms; refurbishment of first-floor main switch rooms; a new car park and external infrastructure works.
At the weekend the firm, which manages contracts in roads and rail as well as other key public services, issued a statement outlining a 'deleveraging plan'.
This led Labour to call for it to be banned temporarily from new public sector contracts.
Shadow minister for the Cabinet Office Jon Trickett MP said: ‘Less than two weeks ago, I asked the Government what extraordinary steps they are taking to monitor the financial health of Interserve.
‘They told me they “do not believe that any strategic supplier is in a similar situation to Carillion,” and in November Interserve continued to win public sector contracts worth millions, despite effectively being insolvent.'
He added: ‘The Government must take urgent steps to ensure all existing contracts with Interserve are reviewed and that they are prevented from bidding for public sector contracts until they have proved they are financially stable and there is no risk to the taxpayer.’
Interserve's statement at the weekend outlined a 'deleveraging plan' designed to 'deliver a strong balance sheet with Interserve targeting leverage of approximately 1.5x net debt/EBITDA'.
This strategy would be likely to involve 'a conversion of a substantial proportion of the Group’s external borrowings into new equity' - that is swapping debts for shares.
The company's statement conceded that this 'could result in material dilution for current Interserve shareholders'.
Interserve is the latest victim of what appears to be a crisis in capital in the infrastructure sector following the Carillion collapse.
Last week, Kier announced a rights issue aimed at raising approximately £264m as it seeks to clear its debt in the face of market reluctance to lend to the construction sector.
Interserve intends to announce its finalised deleveraging plan, which would be subject to shareholder approval, in early 2019. It said it continues to trade well and in line with its expectations for the year ending 31 December 2018.
Debbie White, CEO of Interserve, said: 'We are making good progress on our deleveraging plan which we expect to announce early in 2019. Our lenders are supportive of the deleveraging plan, which will underpin the long-term future of Interserve. Our refinancing in April of this year contemplated the development of a deleveraging plan in consultation with our stakeholders and the liquidity injected at that point also gave us the funding to execute our business plan.
'Our discussions with our lenders are a positive step in the process that was agreed as part of the April refinancing. The Cabinet Office has also expressed full support for the work we are doing to implement our long-term recovery plan.
'The fundamentals of our business remain strong. The deleveraging plan will give Interserve a strong long term capital structure and provide a solid foundation on which to build the future success of the Group.'