Will the collapse of UK construction firm Carillion impact business in UAE?

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The collapse of Carillion, the UK’s second-largest construction company, is unlikely to significantly impact its interests and the projects in the UAE, according to people familiar with the matter, even as the firm’s collapse threatens to significantly impact the UK’s economy.

The construction firm, which employs 43,000 people globally, including 20,000 in the UK, went into liquidation on Monday after banks refused to provide any further financial support. The company has been struggling under the weight of heavy bank debt, pension obligations and delays in collecting payment from clients.

Carillion’s UAE-based projects, which include major building works for Expo 2020 Dubai, are delivered via the Dubai-incorporated vehicle Al-Futtaim Carillion (AFC), a 51:49 joint venture between Emirati conglomerate Al-Futtaim Holding and Carillion.

“The local joint venture, which is 50 years old, has nothing to do with the UK entity – it is an independent operation in which Carillion is the minority stakeholder,” said a person with knowledge of the situation, who asked not to be named.

“There will be no direct impact on AFC’s projects. It’s the same as when a minority shareholder of any business gets into trouble. Life goes on.”

AFC, which was established in Dubai in the 1970s, was appointed last March to build the three themed districts for the Expo 2020 Dubai mega-event.

“We are in close contact with the company, and are constantly monitoring the current issue,” an Expo official told The National.

“We do not anticipate any impact on project delivery and are on track to deliver a spectacular Expo on time and in budget.”

Construction of the theme districts at the Expo site in Dubai South is “well advanced” and work is continuing as planned, the official added.

Spokespeople for AFC and Al-Futtaim Holding were both unable to comment ahead of publication.

As well as Expo 2020 Dubai, AFC’s current contracts include the latest phase of Dubai World Trade Centre’s One Central development – its third one for the project. It has also worked on projects at Abu Dhabi’s Yas Island and Al Raha Beach developments, Dubai Festival City, and The Lofts by Dubai-based developer Emaar Properties.

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Carillion was spun out of Tarmac in 1999 before acquiring UK house builders George Wimpey, Mowlem and Alfred McAlpine. The company has suffered from rising debt following cost overruns on key government construction projects and a downturn in new business.

In total, Carillion owes around £900 million (Dh4.5 billion) to banks including RBS, Santander UK, Lloyds, HSBC and Barclays, and has a pension deficit of £580m, bringing its liabilities to around £1.5bn.

Its shares, which have lost more than 90 percent of their value since a profit warning last July, were suspended from trading on Monday.

“In recent days we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision,” Carillion’s chairman Philip Green said.

The appointment of PwC as administrators for the company’s compulsory liquidation stunned analysts, who had expected the firm to be put into administration for restructuring.

The collapse of the company, which provides facilities management for courts, schools and hospitals as well as management services for military bases, threatens to send shockwaves across the UK economy.

British officials were working on Monday to ensure public services continued to function at schools, nuclear plants and along the national transport network, where Carillion manages high profile electrification contracts for operator Network Rail.

David Lidington, the de-facto deputy prime minister and head of the cabinet office, said the receivers would be paid by the government and direct all government contractual payments to Carillion staff.

“Ever since the profits warnings were announced in the course of last year, the various government departments that had business with Carillion have been drawing up contingency plans about how they might respond,” Mr Lidington said.

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Jon Trickett, a spokesman for the opposition Labour Party, called for the nationalisation of government contracts with private firms.

PwC confirmed on Monday that shareholders would be wiped out, while the company’s numerous subcontractors face substantial losses. Fellow construction firm Balfour Beatty, which is in a joint venture with Carillion in three roadworks projects, said it expects outflows of £35-45m as a result of the collapse.

Staff and former staff enrolled in Carillion pension schemes face significant haircuts, with early estimates suggesting up to 15 per cent for some schemes.

Carillion’s operations in the Middle East have shrunk substantially over the past year as the company grappled with financial difficulties; the firm announced its exit from Saudi Arabia, Qatar and Egypt In July. It also sold its 50 per cent stake in Carillion Alawi, a joint venture with Oman’s Zawawi family.

Following Monday’s news, a buyout of Carillion’s minority stake in AFC by Al-Futtaim Holding is one option on the table as AFC looks to minimise disruption to its operations and maintain its reputation.

“It is obvious that such talks could be taking place,” said a person familiar with the matter. “Logically speaking this would be a natural solution.”

However, any stake sale – whether to Al-Futtaim Holding as an outright acquisition, or to a different contractor – would have to be approved by the liquidators, said David Xu, Dubai-based counsel at law firm King & Wood Mallesons.

“AFC has a strong track record here in the UAE and the impact of the UK liquidation will not be immediately felt, while residual uncertainties will be slowly sorted out,” he said.

Source Credit: The National


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