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Short sellers target Interserve after Carillion collapse
Investors are continuing to place bets against social housing contractor Interserve, prompting the government to deny it is in a comparable position to doomed construction firm Carillion.
Data provided to Inside Housing by market insight firm IHS Markit revealed that Interserve, whose share price has fallen by 67% since the start of 2017, is the most heavily ‘shorted’ contractor in the sector, aside from Carillion itself.
On Monday this week, the figures showed that Interserve short sellers accounted for 17% of all its outstanding shares, a one-year high.
Carillion, which is currently at 23%, hit 32% in December. Other contractors Capita, Balfour Beatty and Mitie were at 8%, 7% and 6% respectively.
Interserve’s share price had dropped 8.6% in the week leading up to this Tuesday, but remained around 10% higher than its position at the start of the year.
There was a flurry of reports about the company’s financial strength in mid-January after it emerged that the Cabinet Office was monitoring its financial position.
Sam Pierson, director of securities finance at IHS Markit, told Inside Housing the contracting sector in general was a target for short sellers at the moment, but Interserve especially so.
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Short-selling is when an investor borrows a security and sells it, believing that the price will decline and the investor can buy it back at a later date, making a profit. It is effectively a bet that a company’s share price will fall.
In Carillion’s case, hedge funds began short-selling its stock even while the UK government was still awarding it contracts.
Short sellers, however, are not always correct in their bets, and Interserve has not reached the same levels that Carillion did.
A Cabinet Office spokesperson said: “We monitor the financial health of all of our strategic suppliers, including Interserve. We are in regular discussions with all these companies regarding their financial position. We do not believe that any of our strategic suppliers are in a comparable position to Carillion.”
The English social housing sector does not have “material exposures” to the liquidation of Carillion, according to the Regulator of Social Housing.
Interserve, on the other hand, has done more business in the sector. In September last year, it won a place on Homes England’s Delivery Partner Panel, meaning the firm is one of the government’s preferred providers for residential developments on public land.
It has also previously carried out works for housing associations East Thames and Circle. Inside Housing has enquired as to the current status of these contracts.
Interserve declined to comment.
