Kvaerner halves lending request

Kvaerner landed a contract on Monday to build an oil platform

The troubled engineering and construction group Kvaerner is now trying to raise just 1bn Norwegian kroner (£129m, $115m), having failed to raise twice as much as part of its desperate scramble to avert bankruptcy.

Mr Rokke could hold the key to Kvaerner's future

The Anglo-Norwegian group which employs 35,000 people worldwide continued its crisis talks with major share holders and banks during Tuesday morning, searching for a way out of its cash crunch difficulties.

Kvaerner's seven-and-a-half thousand strong workforce is employed in its London headquarters as well as in Aberdeen, the North East of England and around the Solent in the south.

The company needs a cash injection in the short-term, coupled with an extensive refinancing package that should secure its long-term survival.

An official said that although the minimum cash injection is 1bn kroner, the company is still striving to raise between 1.5bn and 2bn.

Bailout

Norway's national broadcaster NRK reported on Monday that the government is willing to step in as a guarantor, but this was later denied by the trade and industry ministry.

"We have not talked about it. It is not up for discussion as long as Kvaerner has not published a statement on its situation," a spokeswoman said.

In the absence of a government bailout, the focus is on the flamboyant billionaire Kjell Inge Rokke and his industrial group Aker Maritime which owns about a fifth of Kvaerner.

A Kvaerner official acknowledged that Mr Rokke, who is also an owner and a director of Wimbledon football club, could hold the key to Kvaerner's future.

Market observers were eagerly awaiting Mr Rokke's next move on Tuesday morning.

Credit worthiness

Kvaerner's crisis talks were dealt a fresh blow during Monday evening when the credit ratings agency Moody's Investors Service downgraded its long-term debt rating amidst growing fears in the market that the company is about to collapse.

Kvaerner employs 35,000 people

"Kvaerner is facing higher liquidity needs caused by a deteriorating business performance and increased working capital needs," said Moody's

"In particular [this is the case] in the group's US engineering and construction business, which may well aggravate in view of the ongoing difficult economic environment."

But in a statement on Tuesday, Kvaerner said there was light at the end of the tunnel after it had convinced the banks that its assets are worth more than its debts.

Cash crunch

Kvaerner's initial efforts to put together a consortium of guarantors for a 2bn Norwegian kroner ($231m, £158m) loan failed as investors were loath to bail out the company after revelations that its debt burden was significantly greater than previously thought.

On Monday, the search for a solution was given a shot in the arm when Kvaerner landed a 1.1bn Norwegian kroner contract to build an oil rig for Stena of Sweden.

Chief executive Almskog resigned last week

This may have contributed to its decision to slash its short-term financing needs.

Moody's welcomed this development, but insisted that "the key challenge to secure Kvaerner's longer-term viability will remain the successful negotiation of a longer-term financing package, including the raising of new equity".

This would "require the support of both bank lenders and shareholders", the ratings agency said.

Shares suspended

The Oslo Stock Exchange suspended trading in Kvaerner shares on Monday and Tuesday while the crisis meetings continued.

A statement had been expected during Monday, but this failed to materialise as the crisis talks continued.

Last week the company's chief executive Kjell Almskog resigned as the company's share price crashed following the sudden financial crunch.

On Thursday, the company's share price fell to a record low of five Norwegian kroner ($0.58, £0.40), before climbing back to 8.8 kroner by Friday's market close.

On Wednesday, the stock stood at 30 kroner. In May, the stock was trading at 75.8 kroner.

Trafalgar House

Kvaerner's financial difficulties stem from an acquisition of its UK competitor Trafalgar House in the mid-1990s.

The acquisition instantly doubled the size of the company, but its debts ballooned as well.

Initial plans involved the merger of complementary units to create a strong core business, followed by the sell-off of non-core units.

The expensive restructuring that followed quickly begun to eat into the company's cash reserves, resulting in the resignation of former chief executive Erik Tonset, the man spearheading the take-over.