The collapse of Henry Construction has triggered a serious bonding crunch for contractors in the Global Bonding market.
Some bond providers are warning firms will now find it much more difficult and costly to raise bonds as a result of the fallout.
Surety capacity is being constrained as providers seek to manage risk and brokers now warn that contractors with tight headroom on balance sheets could even be refused bonding.
Henry Construction is believed to have had over £150m of bonds “live” at the time of entering administration, spread among 13 surety providers.
The hit taken from the £400m revenue contractor’s collapse is broadly equivalent to one year’s premium throughput in the non-bank surety market.
It was a once in 10-year event for a company of this size but comes off the back of already high levels of corporate insolvency over the last 18 months.
The surety market has taken a big hit and now we are seeing bond capacity tightening appreciably. The next year is going to be challenging to say the least.
Everything will be scrutinised much more closely.
Nonetheless, in high-growth markets, there is an increased demand for innovative construction. The One Belt One Road Initiative in China is expected to provide opportunities for the growth of the surety market. The determined investment strategy aims to promote both Chinese and global economic growth. The initiative, a mega infrastructure project, aims to attract investment largely in the transportation sector and the energy sectors. That includes the construction of roads, bridges, railways, ports, power grids, and other large construction projects.
Additionally, the increasing adoption of the public-private partnership modelling is fueling market growth.
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