Shares in Kier Group crashed on Friday after the firm announced that it will tap investors for £264 million as storm clouds gather over the construction sector.
The firm said that the proceeds of the rights issue will go towards reducing debt and it is also aimed at strengthening the balance sheet.
Shares tumbled over 23% following the announcement to 576p.
Explaining its rationale for the move, Kier said it believes that risks associated with its net debt position have recently increased.
This is because banks have started to reduce their exposure to the construction sector, which could impact the ability of the group to raise cash in future.
It added that clients are “increasingly focusing on service providers’ balance sheets”, resulting in “rigorous and automated” procurement processes following the collapse of rival Carillion earlier this year.
Chief executive Haydn Mursell said: “There has been a recent change in sentiment from the credit markets towards the UK construction sector, with various lenders indicating that they will be reducing their exposure to the sector.
“This has led to lower confidence among other stakeholders and an increased focus on balance sheet strength. The rights issue is intended to address these issues, better position Kier to continue to win new business and further strengthen our market leading positions.”
The sector was rattled by the collapse of Carillion, although its demise was ultimately a boon for Kier, which has since seen its construction order book reach record levels of £5 billion.
Nevertheless, business optimism in the construction sector hit its weakest level in almost six years in October as Brexit delayed final decisions on projects, according to the closely-watched Markit/CIPS UK Construction purchasing managers’ index.
Under the terms of the rights issue, Kier is proposing to offer 64.5 million new shares at 409p each, a 46% discount on Thursday’s closing price of 752.5p.
Shareholders can buy 33 shares for every 50 shares they own.
The group is currently in the midst of its “Future Proofing Kier” programme, aimed at streamlining the business and improving cash generation.
To this end, Kier will dispose of around £30 million to £50 million worth of non-core assets.