Shares in Government contractor Interserve have plummeted after the firm said shareholders are likely to see their stakes diluted as part of a plan to cut its debt.
It emerged over the weekend that the company, which holds contracts for a range of services in prisons, schools and hospitals, was holding talks with lenders over its £500 million debt pile.
In a statement released to the market on Monday morning, Interserve said a plan had not yet been finalised but was likely to involve “material dilution” for current shareholders.
Shares in the company dropped as much as 75% to just 6p in early trading.
Chief executive Debbie White said the discussions were a positive step in a refinancing process which was agreed in April.
She added that the Cabinet Office had expressed support for the firm’s recovery plan.
“The fundamentals of our business remain strong,” she said.
“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.”
The Labour Party called on Sunday for a temporary ban on Interserve bidding for any public contracts.
Shadow Cabinet Office minister Jon Trickett said: “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.”
