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Contractors are starting to circle ailing social housing firm Connaught after it admitted it would breach banking covenants without an urgent cash injection.

At least two major contractors are eyeing the 拢660m-turnover firm, which said it was in 鈥渃onstructive dialogue鈥� with its banks. At one point this week, its share price had fallen 80% from its position last Friday.

Meanwhile, credit reference company Top Service said negative reports about overdue payment to Connaught鈥檚 suppliers had increased tenfold in the past three months.

A senior figure at a major contractor said: 鈥淭hey have an order book of about 拢2bn, so plenty of companies will have a look. The only question will be the level of profitability of those contracts.鈥�

The boss of a rival contractor added: 鈥淚t would be virtually impossible to buy the whole company because you don鈥檛 know what鈥檚 in there. If it came to a pre-pack administration process we鈥檇 have a good look though.鈥�

It is also understood that Kinetics, a private equity-backed social housing buy-and-build specialist, would be interested in buying Connaught, although the company declined to comment.

On Monday, Connaught, which made a pre-tax profit of 拢26.7m last year, told the city its net debt would be in excess of the expected level of 拢120m, and it had an 鈥渦rgent requirement鈥� to raise additional funds. This followed a forensic audit of the firm鈥檚 accounts in recent weeks, following its 25 June profit warning.

So far the firm鈥檚 customers, which include councils and major housing associations, are standing by it, although a number said they were exploring 鈥渃ontingency options鈥�.

Sir Roy Gardner, its chairman, this week announced a number of senior appointments, including, Stephen Billingham, the former finance director of Atkins, and Chris Sellers, the group鈥檚 business development director, who will become acting chief executive.

Sources said the sudden disclosure of worse than expected finances was linked to Connaught鈥檚 aggressive accounting policies, although no fraud is alleged. Unlike competitors, Connaught registers the cost of mobilising for a contract over a period of years, which means it takes less of a hit on its finances. It also has a reputation for booking profits from jobs early.

Gardner has commissioned a review of accounting policies, which is likely to report in August.

Connaught is understood to have faced two questions from the Financial Services Authority over the disclosures, but the regulator鈥檚 involvement falls short of an official investigation.