THE City watchdog has launched a probe into beleaguered social housing firm Connaught, it was reported today.
Connaught, which warned yesterday it was in "urgent" need of additional funding, faces an investigation by the Financial Services Authority (FSA), the Financial Times reports.
The FSA is said to be looking at several lines of inquiry including whether Connaught revealed price-sensitive information quickly enough. Connaught and the FSA declined to comment.
The crisis-hit company has seen shares tumble more than 90% since warning of a £200 million blow to revenues from Government spending delays a month ago.
The Exeter-based firm said yesterday it would breach banking covenants after warning its debts will be well over the previously advised level of £120 million by the end of August.
The firm, which has around 180 multi-million pound social housing contracts all over the country, is in talks with its lenders after a review had identified an "urgent requirement" for additional funds to meet current and ongoing business, in part due to pressure from suppliers and sub-contractors.
Chairman Sir Roy Gardner has drafted in four new directors to help Connaught weather the storm. The business recently announced the departure of founder Mark Tincknell on health grounds less than six months into his second spell as chief executive.
Mr Tincknell, who had been with Connaught for 28 years, is due to continue in a new role while finance chief Stephen Hill is to depart in October.
Earlier this month, Sir Roy launched an independent review of accounting policies on mobilisation costs for contracts - currently recognised over the lifespan of contracts rather than upfront.
Connaught shares edged 8% higher today after yesterday’s 70% tumble, although both Sir Roy and Mr Tincknell are heavily out of pocket on shares bought at the beginning of May before the problems emerged.
The duo bought shares worth £500,000 and £1 million respectively when shares were trading above 300p.
Connaught recently identified 31 projects where spending will be delayed as a result of the spending clampdown, wiping £80 million off revenues and £13 million from underlying profits in the current financial year.
If the squeeze continues into 2011, sales and profits will fall by a further £120 million and £16 million respectively.