A big test today for Leighton Holdings, its board, former management, its big German shareholder Hochtief AG and that company’s biggest shareholder ACS of Spain.
Leighton shares have been in a trading halt since Thursday after the board held meetings earlier in the week to look at a possible update of the group’s earnings forecast for the year.
Media reports suggested that the company could end up warning of huge losses, writedowns and a big share issue.
Some reports have put the size of the issue at $800 million to $1 billion as Leighton struggles to contain losses on a road project in Brisbane, a desalination plant in Victoria and troublesome businesses in Dubai.
Analysts expect the downgrade to slash – or even wipe out – Leighton’s full-year earnings, a dramatic fall from last year’s record $612 million net profit.
The company had most recently forecasted full-year earnings of $480 million, down from $520 million.
It will be the third downgrade this year.
Leighton shares closed at $28.99 last Thursday, the day it asked for a trading halt.
They are down almost $10 in the past year from their 52 week high of $38.73 reached a year ago last Friday, April 9, 2010.
Their most recent high was $31.96 on February 17, three days after the company’s interim profit announcement.
The low was hit last July when the shares touched $27.61.
That will be broken when the details of the losses, issue and other news are released today.
The issue will have to be done at a substantial discount to get it away.
A 20% discount has been reported, which would put the share price down around $22.50.
The news has hurt Hochtief, Leighton’s big German building company parent.
Leighton and Hochtief boards discussed the deal last night and this morning, according to media reports.
Hochtief owns 56% of Leighton and warned last week that its earnings will be hit by the Leighton downgrade.
As a result Hochtief shares fell 10% in Germany last week (7% on Thursday alone) after Leighton went into its trading halt.
ACS, the big, financially stretched Spanish construction group which is grabbing control of Hochtief (it has around 42%) will also be hurt by the Leighton downgrade and issue.
ACS can’t afford a lot of cash (it has 8 billion euros of debt) and Hochtief is also a bit stretched.
Failure to maintain its stake in Leighton above 50% could also see Hochtief in trouble with its banks.
A big issue by Leighton will require Hochtief to contribute more than half of that and ACS could be up for a share of that.
But if Hochtief can’t, or won’t contribute to that level, Leighton might have to sell more shares in Australia and cut the German’s level of control (and ACS’s).
ACS wants Hochtief to help it diversify away from Spain’s struggling construction sector, and Leighton was seen as the main prize in the deal.
