Capita seeks to shore up finances, as debt-laden company’s losses increase

Blog Debt Turnaround

Capita, the outsourcing company responsible for collecting, among other things, London’s congestion charge and the BBC licence fee, is looking to raise £701 million to fend off further debt.

The company is hoping to raise the cash through a rights issue – where shares are sold at a reduced price to existing shareholders – following the announcement of a £513 million loss for 2017.

Capita will be issuing one billion new shares at less than half the current share price and is stressing that comparisons with the recent collapse of Carillion are unfounded.

Jonathan Lewis, the new chief executive, said of the suggested similarities: “I get frustrated with that comparison – we are a completely different business. We have £1bn in liquidity, strong cashflow and a new strategy with investor support. We are not in PFI contracts and have nothing like the risk profile.”

The news of the losses came in the wake of a 40 per cent fall in share prices earlier this year.

Capita has plans in place for how it will spend the £701 million it hopes to raise from the rights issue. Once adviser fees have been paid, expected to be around £39 million, the money will be used to pay down the £1.1 billion worth of debt the company is burdened by, along with investment in technology and the turnaround plan it has devised.

The cash raising exercise has been backed by Capita’s largest investors and following the announcement of the rights issue, the company’s share price rose by 13 per cent.

Commenting on the company’s outlook, the chief market analyst at CMC Markets UK said: “Only last week the company renewed its contract with the BBC to collect the licence fee, so while this week’s loss doesn’t make for pleasant reading, the announcement does appear to suggest that management have a turnaround plan that might work, and the confidence of shareholders in pulling it off.”

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