United Kingdom-based construction and outsourcing group Interserve said on Monday morning that it was in talks with lenders to cut its debt pile by swapping some of its outstanding loans for equity in the company.

The firm, which operates several joint ventures in the Middle East, said in its statement that it was working with advisors on a deleveraging plan to cut its net debt to 1.5-times EBITDA (earnings before interest, tax, depreciation and amortisation), which will involve extending some of its loans but also swapping some debt for equity.

"Although the form of the deleveraging plan remains to be finalised, it is likely to involve the conversion of a substantial proportion of the Group’s external borrowings into new equity, an element of which may be sold to existing shareholders and potentially other investors," the company said in a statement.

"If implemented in this form, the deleveraging plan could result in material dilution for current Interserve shareholders."

Interserve operates in several Middle East markets through joint ventures in contracting and facilities management firms in Oman, Qatar, Saudi Arabia and the United Arab Emirates.

It is a joint venture partner in UAE-based Khansaheb Civil Engineering, Qatar-based Gulf Contracting Company and Douglas OHI of Oman in the contracting sphere, and operates in the facilities management sphere under various Interserve-branded joint ventures in Saudi Arabia and Oman, and as How United Services in Qatar.

Accounts for the first six months of 2018 posted in August revealed that it generated around 16 percent of total revenues from its Middle East and Africa businesses, some £268.1 million ($341.8 million) of a total of £1.67 billion. Revenue from the region had declined by 13.6 percent year-on-year, which the company said was due to macroeconomic challenges, and the ongoing Qatar blockade. Revenue from its Qatar business was £31.2 million lower than in the previous year, the firm said.

Globally, the company declared an £18.2 million loss attributable to shareholders for the period and had net debt of £614.3 million, which was more than 10 times its EBITDA of £60 million.

The company said in its statement on Monday that it would seek shareholder approval for its deleveraging plans once they are finalised, which is expected to be early in 2019.

Chief executive Debbie White said in the statement that "the fundamentals of our business remain strong".

Interserve provides a number of outsourcing contracts for government services in the United Kingdom including maintenance contracts for schools and hospitals.

(Writing by Michael Fahy; Editing by Shane McGinley)

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