Shares in Leighton Holdings (LEI) plunged more than 10% or around $2 yesterday in the wake of the bribery and corruption allegations published in Fairfax Media newspapers.
The shares lost $2.04 or 10.4% to end at $17.54. They had earlier hit a one month low of $17.53.
Shares in German construction group, Hochtief (which owns 56% of Leighton) also lost ground, slipping more than 7% in Europe.
Hochtief is in turn controlled by Spanish construction group ACS whose shares are up more than 30% this year as it has cut debt and costs to survive Spain’s deep recession.
The allegations, which appeared in three separate Fairfax papers in Sydney (The Herald), Melbourne (The Age) and nationally in The Australian Financial Review, relate to details of material already self-reported by the company to authorities.
Reuters reported "Investors and analysts played down the media reports, saying they reopened old wounds tied to previous management rather than inflicting fresh reputational damage, and pointed to Leighton’s efforts to improve ethics compliance over the past two years."
"My reaction when I read it this morning is that it’s just a rehash of old news," said Don Williams, chief investment officer at Platypus Asset Management, was quoted by Reuters. Mr Williams said his company doesn’t own Leighton shares.
Analysts pointed out the claims have come as Leighton has started emerging from the being on the stockmarket suspicion list after big losses on poorly run projects in Victoria, Brisbane and in the Middle East. Also it has suffered from management and board turmoil since Wal King resigned as CEO back in 2011, as well as these problem contracts in Iraq and several other countries where bribery and corruption claims were reported by the company.
But Fairfax claimed that there was more material uncovered in their six month investigation and one of those was a handwritten note by former CEO David Stewart which claimed Mr King had known of a payment to a third party in a contract Leighton had won in Iraq.
The Fairfax papers claim said that hundreds of confidential company documents revealed that top executives, including Mr King, knew about the corruption claims. The allegations include the payments of kickbacks in Iraq, Indonesia, Malaysia and other countries, as well as other serious corporate misconduct, such as a barge contract involving steel stolen from Leighton by a company executive.
That was denied by Mr King in a statement and media comments yesterday. According to Bloomberg, Mr King said he had no prior knowledge of any wrongdoing at the company and that he had not been contacted by the police. Mr King briefed lawyers as well, according to other media reports.
Mr King’s comments came as Leighton Holdings said in a statement that it was "deeply concerned" about bribery and fraud allegations made against the firm, but denied it had a culture of corruption and cover-ups.
Leighton said in a lengthy statement to the ASX that it had voluntarily reported to the Australian Federal Police in 2011 a possible breach of its code of ethics after accusations of bribery payments in Iraq.
"Leighton Holdings reiterates the information previously disclosed on 13 February 2012. Leighton continues to cooperate with the AFP while the AFP undertakes its investigation. We are not aware of any new allegations or instances of breach of our ethics," the company said in the statement.
"Leighton takes these accusations seriously and is deeply concerned about the suggestions of impropriety. We have more than 61,000 employees who are focused on delivering our 400 plus current projects to the highest ethical and professional standards.
"The Iraq investigation and the construction of the barge in Indonesia are exceptional instances that are the subject of either an ongoing confidential investigation by the AFP or litigation commenced by Leighton Holdings which is before the courts," Leighton said.
Leighton said the fraud allegations in relation to the barge construction in Indonesia were internally investigated and resulted in the company taking a former employee to the NSW Supreme Court to recover $5.6 million. That case is still before the courts.
Leighton said its board had acted in the best interests of its companies and its board members were "aware of their responsibilities and have at all times executed their duties with the appropriate care and diligence".
"Over recent years, Leighton Holdings has continued to strengthen and improve its corporate governance and risk management processes including:
"Revising our comprehensive Code of Business Conduct which sets out the behaviours that Leighton employees must adhere to, regardless of where they operate. The Code includes disciplinary action if breaches of the Code occur.
"Further enhancing its risk management capability to better measure, manage and control risk. Tender risk controls have been improved, including an update to the criteria for determining levels of risk in tenders.
"Establishing a `5 gate´ tender review and approval process, with separate approvals required to: pursue a prospect; prepare and submit a non-binding proposal; prepare a tender; submit a tender; and execute a contract. This process culminates in projects of a certain size and risk profile requiring the approval of the recently established Tender Review and Risk Committee of the Board.
"Taking additional steps to enhance its independent internal audit function and assurance program.
"These changes have strengthened the Group and brought a new governance rigour to the benefit of shareholders," Leighton said in its statement yesterday.
