Rights issue gossip starts Jarvis race

SHARES in Jarvis fell again on rumours of a rescue rights issue. A quarter of the contractor's shares changed hands as institutional investors raced for the exit.

Jarvis, chaired by London mayoral candidate Steven Norris, closed down 14 3/4p at 71 3/4p, an eight-year low.

Market sources said the rail and schools contractor was preparing a one-for-one rights issue at 40p to give it time to renegotiate banking covenants.

Shareholders fear acting finance director Alistair Rae may unearth nasty surprises in an asset review ahead of June's full-year results.

Geoff Allum, at Investec, warned that Jarvis would have negative cash flow for the next two years and must sell assets and slash its dividend to service £120m debts. Part of its stake in the London Underground Tube Lines consortium is said to be up for grabs.

Joint broker Dresdner Kleinwort Wasserstein cut its profit forecast by 21%. Jarvis declined to comment.