Leighton Holdings may have answered a ticklish question from the ASX yesterday about why it didn’t update the market about its profit drop and writedowns faster than it did, but its problems in the troubled Middle Eastern state of Dubai seem to be deeper than thought last week.
Leighton told the market yesterday it didn’t have enough certainty on its earnings to issue a downgrade earlier than April 11 (last Monday).
In its query the ASX had questioned the timing of Leighton’s $900 million downgrade, which saw Australia’s largest construction and contracting company revise its net profit for the year to the end of June from $480 million to a $427 million loss.
That $900 million turnaround caused the company to start raising capital and last week it gathered $514 million from big investors, including 54% holder, Hochtief of Germany. It will ask small shareholders from today for another $243 million at $22.50 a share.
In its statement yesterday, Leighton said it didn’t have enough certainty on the scale of the downgrade until a review of its operations was formally concluded with a board meeting on the morning of April 11.
"Although the review was not yet complete, the company requested a trading halt pending the urgent completion of the review. The trading halt was granted by the ASX prior to the commencement of trading on April 7, 2011," Leighton said.
"At all times the company has been mindful of its continuous disclosure obligations.
"It was not until the conclusion of the review process at the board meeting on the morning of 11 April 2011 that there was sufficient certainty regarding the facts and circumstances underpinning the earnings downgrade," it explained.
The shares fell 1%, or 25c, to $24.63 yesterday, more on the news from Dubai where it has taken hundreds of millions of dollars in losses and injected extra capital into the company, Al Habtoor Leighton (or as Leighton calls it Leighton Habtoor Group).
Despite that extra capital, Reuters reported yesterday morning that the affiliate of Leighton Holdings may need a cash injection from its parent firm if its ongoing projects in the region are not paid on time.
Reuters quoted the joint ventures top executive Laurie Voyer who said, "We have reported to our three shareholders the sensitivities of cash and cash collection. (If) we don’t get paid or something gets delayed then we need standby facilities.
"At the end of the day, the shareholders need to come to terms with how to take the business forward."
Mr Voyer said that most contractors in the region have an issue with their legacy projects, adding the company is working with clients to sort out pending issues.
"We have not taken direct action at the moment about recovery. We are working to sort out issues with our clients," he said, refusing to divulge how much the company is owed in the region.
The company is working on projects in the range of 20 billion UAE dirhams, Mr Voyer said.
In its statement on April 11, Leighton CEO David Stewart said in relation to HLG (Habtor Leighton Group):
"Normally we would not review the carrying value of HLG until June but due to deteriorating cashflow from legacy projects and the requirement for the injection of AED1 billion in additional shareholder loans, we believe it prudent to review the carrying value of HLG. 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.
"While some new work has been awarded recently, including a joint venture to build the ~$585 million Al Mafraq Hospital in Abu Dhabi and the ~$105 million Abu Dhabi Islamic Bank’s new headquarters in Abu Dhabi, other opportunities remain slow to come through.
"We have revised down our estimates of the contribution to be booked from the HLG business for the remainder of the year due to provisioning, including receivables. Leighton’s equity accounted share of this expense is worth $120 million.
"However, the additional provisioning and shareholder funding required in the current year impacts the carrying value of the asset. We have written down the book value of investment in HLG by a further $200 million, reflecting our revised expectation of future earnings from that business.
"This combination of the provisioning and increased impairment results in a revised book value for HLG of $525 million," said Mr Stewart."
