Trading in Leighton shares remains suspended until Thursday to allow the company and its advisers time to raise the $757 million in new capital after the company confirmed huge losses and no final dividend for the year to June 30.
The issue will be made at $22.50 a share, against the last sale last Thursday of $28.94 and the 52 week high a year ago of more than $38.
That represents a significant dilution for shareholders who don’t accept.
The contractor announced more than $1.1 billion in writedowns – $907 million after tax.
In fact the country’s biggest construction company suffered a $900 million turnaround into the red, according to yesterday’s update.
In February it expected to report earnings of $480 million this financial year (which already reflected a downgrading of earlier expectations of earnings around $520 million) but it will now report a loss of $427 million.
Profit in 2010 was a record $612 million, so in fact the turnaround is well over $1 billion from last financial year.
Leighton said the revision to its guidance was mainly due to write-backs of expected profit on the Airport Link project in Queensland, the Victorian desalination project and the impairment of Leighton’s investment in its Middle Eastern business Habtoor Leighton Group.
The biggest writedown came from a larger-than-expected $470 million pre-tax impairment on the Brisbane Airport Link project, which has encountered ‘‘design, access, weather, engineering, planning and coordination difficulties’’ leading to extensive delays and cost blow-outs. The project is now expected to report a pre-tax loss of $430 million.
The $5.7 billion Wonthaggi desalination plant in the Gippsland, southeast of Melbourne will cost the company $282 million in lost profits with the project now expected to earn just $6 million, which is really a rounding error on such an expensive project.
CEO David Stewart, who has been forced to make three profit downgrades in the six months since taking over from his long-serving predecessor Wal King, also announced a further $320 million impairment relating to its troubled Middle East joint venture, Al-Habtoor.
The value of that joint venture, a key project of former CEO Wal King, is now $645 million down from $1.1 billion at the start of the year.
Hochtief will take up its full entitlements to the capital raising: that’s around $400 million, which will maintain its stake at a level that keeps its banks happy (It needed to be able to call Leighton a subsidiary to improve its balance sheet and financial strength).
The company will also try to raise money through asset sales, including some listed investments such as Devine and Macmahon Holdings as well as Leighton Properties.
Remember Wal King has popped up as a director at Ausdrill and it’s looking to raise $149 million for expansion.
Leighton claims it will earn a profit of as much as $650 million in the 2012 financial year, but that’s so far away as to be a meaningless ambition at the moment.
The Dubai business looks to be a potential source of future earnings problems.
The company has had to inject a further $257 million in new capital by way of loans into the JV.
The business is struggling to recover payments from various projects in the region, particularly from Dubai and Qatar (and especially government projects in Dubai).
CEO Stewart seems to have recognised the future potential for ore problems from this area with the comments in the statement yesterday: ‘‘Conditions for our business in the Middle East are still proving to be volatile, recovery of receivables has not improved and the winning of new projects remains slow”.
"Moving forward we will be changing the way we tender and deliver major projects. We will be enhancing our focus on tender accuracy and risk identification, adequate pricing of risk, adequate time allowances, project delivery and risk management, and client cooperation and issues that could impact project performance.
"Since December 2010, we have been awarded an additional $4.2 billion in new work and the Group currently has a strong level of preferred positions.
"Having worked our way through these issues carefully we expect to return to delivering the profits our investors expect and they should be in the range of $600 – $650 million for FY12 with further growth beyond that," Mr Stewart said.
That’s a confident assertion given that in many downgrades of this size and nature, the first estimate of losses can quite often turn out to be too optimistic, with more needed down the track.
