Carillion crisis deepens after reports construction firm's lenders rejected rescue plan

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LONDON, Jan 12 (Reuters) - British building and services company Carillion remains in "constructive discussions" with its creditors and suggestions they have rejected its business plan are incorrect, the company said on Friday.

The company is in crunch talks over its future with ministers and the Pensions Regulator.

Scottish Labour's shadow economy secretary Jackie Baillie called on the Scottish Government to clarify the potential impact if Carillion collapses.

A spokeswoman for the Pension Protection Fund said it was "aware of the discussions between the company, government and banks and, along with the trustees and the Pensions Regulator, will act as it always does to protect the interests of Carillion scheme members and levy payers".

Sky News reported that the approach is part of a contingency plan by Carillion as talks continue with bankers.

"The Government knows the disastrous consequences of a Carillion collapse so is doing all it can to avoid that happening".

"The thousands of workers with Carillion and those in the supply chain servicing its contracts across the public sector will be desperately anxious about the future and they too need to be reassured by the Scottish Government as a matter of urgency".

Adding to the pressure on the small cap firm - which issued three profit warnings in less than six months a year ago and has seen its market value collapse by 90% - was a recommendation from broker Peel Hunt to sell the stock ahead of forthcoming newsflow.

In addition to its rail operations, Carillion also manages almost 900 schools, provides services to the NHS and works with National Grid. It is also a key contractor on the £56bn HS2 rail project.

Spun out of Tarmac almost 20 years ago and having bought Alfred McAlpine in 2008, Carillion has worked on key construction projects including London's Royal Opera House, the Suez Canal road tunnel and Toronto's Union Station.

He said it was a "pretty messy situation", adding: "The situation is pretty bleak".

A Transport Scotland spokesman insisted Carillion had "no intention of withdrawing" from the Aberdeen bypass project and that "they too remain committed to completing it in accordance with the contract".

A spokesman for the Scottish government said: "We continue to liaise with United Kingdom government colleagues to monitor and mitigate service risks associated with Carillion's financial situation".

The person familiar with the situation, who asked not to be named due to the sensitivity of the situation, said the government needed to get involved to help prop up the supplier.

Any agreement was likely to involve the raising of new capital and the conversion of existing debt to equity, which would result in "significant dilution to existing shareholders", it said in a statement.

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