The abrupt collapse of ISG has triggered concerns over financial access within the construction industry, caution experts.
- The £2.2bn-turnover firm’s administration last week ended its UK operations and resulted in 2,200 job losses.
- Credit insurers warn that trade credit and funding may become tighter as risk assessments are revised.
- A hardening insurance market is predicted, with heightened caution for bond provisions in the sector.
- The insolvency highlights the challenge of navigating financial expectations amid recent industry insolvencies.
The construction industry is facing a period of uncertainty following the collapse of ISG, a leading firm with a turnover of £2.2 billion. This event has prompted sector experts to warn of a likely tightening in the accessibility of finance, as financial providers reassess their risk exposure.
James Burgess, the head of commercial at credit insurer Atradius, emphasised that ISG’s situation illustrates the mounting challenges faced by the industry, where insolvency rates are on the rise and confidence appears to be declining. He cautioned that trade credit insurance premiums may experience an uptick, creating ripple effects throughout the supply chain. Access to funding, he noted, may also become constrained in the short term as lenders adapt to the evolving risk landscape. However, Burgess suggested that firms with robust financial health might fare better amid these changes.
Moreover, Kirsteen Milne, a partner in construction law at Brodies, highlighted the potential repercussions for the surety market. An insolvency of this scale, she said, is likely to inflate premiums and contribute to the sector’s further hardening. Notably, securing bonds has become increasingly difficult for construction firms, especially following recent high-profile insolvencies such as Henry, Buckingham, and Readie. Milne stated, “ISG’s insolvency is likely to mean that bond providers will be exercising even more caution in deciding which companies they will provide bonds to and for what price.”
Nick Holloway, managing director at Interpath, remarked that the financial stakeholders are likely to revisit their market strategies and risk appetites, as the scale of ISG’s insolvency is expected to provoke a comprehensive reassessment. Financial entities, such as private equity firms, will likely reconsider their positions and possibly reprice their exposures.
In a different perspective, Tony Derbyshire, head of managed repair at Crawford & Company, expressed apprehension about the growing number of insolvencies in the construction sector over the past three years, noting that financiers would be understandably wary. Yet, Laura Capper, head of construction at NatWest, offered a more optimistic viewpoint, highlighting the industry’s resilience and determination despite facing numerous challenges. NatWest, she affirmed, evaluates funding requests individually, considering each business’s particular circumstances.
The collapse of ISG serves as a stark reminder of the complexities and risks involved in the construction industry’s financial dealings.
