Dubai-based contractor ASGC is to buy a 15% stake in Costain, in an investment worth £25m, as part of a £100m rights issue.
Costain originally announced the rights issue in March after it revealed a £6.6m pre-tax loss in 2019. It blamed the decline in profit on a series of issues, including contract delays, a contract cancellation, and the impact of the arbitration outcome on the A465 Heads of the Valleys road project.
However, the covid-19 crisis has since worsened the picture for the firm, which has warned that in a worst-case scenario, it will see six months of disruption to its activities, which could result in a 56% reduction in profit from complex delivery works, a 10% reduction in profit from its high-margin services, and a 43% reduction in new work.
To help secure the rights issue, ASGC has entered a binding commitment to invest £25m in Costain shares, giving it a 15.2% stake in the company.
ASGC was founded in 1989 and has built projects such as the Coca-Cola arena in Dubai, as well as expanding the Dubai International Airport. The company has an annual turnover of $1bn and 17,000 employees. It is privately owned by Mohamed Saif Bin Shafar, Emad Azmy and Mohammed Al Sayyah, who remain its chairman, vice chairman and a non-executive director respectively.
Costain pointed to its £4.2bn order book, including £1.1bn related to HS2 as at 31 December 2019, which it said underpinned its medium-term growth and cashflow. It said it would use the proceeds raised from its capital raising to demonstrate its increased financial capacity to clients at a time when contractors are facing increased scrutiny of their balance sheets, as well as using the investment to fund bids for new business, and new technology and innovation.
Meanwhile, the firm’s banking partners have agreed to extend Costain’s existing debt facilities until 23 September 2023 should the rights issue succeed.
But Costain has warned that if the planned rights issue fails, it could breach its banking covenants in June 2020 “if actual performance is below the reasonable worst-case projections”, potentially leading to insolvency if lenders did not offer Costain covenant waivers.
Alex Vaughan, chief executive Officer, said: “We are pleased to have secured significant support from investors for this fundraising. With a stronger balance sheet and the positive long term outlook for UK infrastructure, Costain will be better placed to benefit from the significant market opportunity in front of us.”
