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Financially troubled Carillion is among the UK construction companies to benefit from more than US$600mn worth of guarantees from UKEF, for construction projects in Dubai.

Carillion is in line to design and build the latest phase of One Central, Dubai World Trade Centre’s new mixed-use development in the central business district. The company has already delivered the first and second phase of the development, the new contract will see it construct two new office towers. UKEF will support US$180mn for the latest phase project.

Earlier this week the company issued a warning on full-year profit projections, and announced its CEO Richard Howson would be stepping down, and that it would be pulling out of construction markets in the Middle East.

Carillion said that it was having payment problems on four construction contracts that are nearing completion which have forced it take a provision of £845mn. It also said that costs had escalated on other projects, and that it had taken a particular hit on public partnership contracts with governments where prices are set ahead of time.

As part of its plans to save cash, Carillion says it will exit construction work in Qatar, Saudi Arabia and Egypt as well as end its public partnership with the UK government.

“It has been a perfect storm that these contracts have gone wrong at the same time and because they were all large contracts the compounding effect becomes very material,” Keith Cochrane, who has been appointed as interim CEO, told analysts.

In recent years, UKEF has supported the company in winning a series of major contracts in the UAE, through both its direct lending facility and buyer loan guarantees.

When asked for a comment on how Carillion’s current financial situation could affect the risk exposure of the financing, and whether their internal due diligence processes had flagged any of these concerns, both UKEF and HSBC declined to comment.

A UKEF spokesperson told GTR: “The UK government is committed to supporting Carillion and other firms in the UK’s construction sector as they trade abroad.”

The other company to benefit from the UKEF guarantee is Kier. It has won contracts for the construction of the Dubai Arena, a 17,000-seater entertainment and sports venue, and two staff accommodation buildings. UKEF will guarantee US$455mn for Kier to carry out the projects. HSBC is financing both of these projects.

“The support required to deliver these major infrastructure contract wins reiterate the growing trend of developers in the UAE seeking export credit agency financing for complex projects,” says global head of export and specialised finance at HSBC, Richard Hodder.

“Each financing solution has a bespoke structure using innovative concepts that ensure it is aligned with the aspirations of all parties involved.”

Construction in focus

The UK is stepping up its support for infrastructure companies and has launched a new initiative bringing together 17 of the country’s leading firms from the sector.

The group, Infrastructure Exports: UK (IE:UK), will gather companies of all sizes to bid for global infrastructure contracts as a single ‘team UK’ consortia.

The new body will be co-chaired by international trade minister Greg Hands and chairman of the Wates Group, James Wates. It aims to make the UK more competitive on the global stage and bring smaller companies into the infrastructure export supply chain.

“Global infrastructure investment is set to increase rapidly in the coming years and we must make sure UK firms are in a prime position to take advantage of it,” says Hands.

“Our team UK approach will bring together leading UK infrastructure companies to showcase their expertise on a global scale and work together to successfully bid for the biggest contracts.”

The companies, which include Carillion, Mace Group and Northern Ireland’s Lagan Construction, will represent around 200,000 employees from across the UK.

By 2030, global annual construction investment is expected to grow by 85% to US$15.5tn, almost the size of the US economy. Research shows that large infrastructure projects award bigger contracts to consortia.

IE:UK will meet three times a year to choose which projects they, as business, wish to pursue with government support. The body will then select the UK businesses with the right expertise to group together to create bids.

Board member British Expertise International will also link the IE:UK to its own network of 25 trade bodies which it supports to operate abroad, reaching 14,000 businesses including SMEs.

The department of international trade (DIT) will also support the initiative with its network of local staff in markets across the world, and will identify key projects for IE:UK to consider.