Shares fall after press reports of Middle East losses and bribery

3 December 2013 0 Comments

3 December 2013

Australia’s biggest builder, Leighton Holdings, is fighting a public relations battle with the country’s biggest media group over allegations of unreported losses in the Middle East and of bribery in Iraq and elsewhere.

Leighton says it is considering “all avenues of redress” against the Fairfax Media group – which owns The Sydney Morning Herald, The Age, The Australian Financial Review, and The Canberra Times newspapers – amid what it calls Fairfax’s “ongoing campaign” against it.

Leighton’s share price has suffered since news reports of corruption began in October this year, and the Australian Securities and Investments Commission (ASIC) has undertaken to work more closely with the police and to improve its handling of foreign bribery cases.

On 28 November The Sydney Morning Herald (SMH) alleged that Leighton Holdings was sitting on internal advice warning that its Middle Eastern joint venture, the Al Habtoor Leighton Group (HLG), will struggle to recover the $1.1bn it claims to be owed for construction work.

SMH also reported that HLG reached settlements with the owners of Middle Eastern developments that have not been publicly announced and have resulted in big losses.

The article said that several “former Leighton executives” questioned Leighton’s willingness to keep funding HLG’s operations given its “problems in getting paid”, quoting one such unnamed former executive as saying: “Leighton is happy to announce any small work won by HLG but are far more reluctant to talk about the reality of getting paid for work in the Middle East.”

The SMH reported “company sources” as saying that “salvage teams” sent by Leighton to recover payments had identified difficulties in litigating against clients associated with the government in Dubai.

The article quoted former Leighton Holdings chairman Stephen Johns as saying, in May 2012, that HLG was something “we should never have gone into”.

Stephen Johns and two non-executive directors resigned in March this year in protest over what they described as interference from the company’s major shareholder, Hochtief.

Newspaper claims Leighton joint venture Al Habtoor Leighton is losing money in Dubai (Lehtm25/Wikimedia Commons)

Leighton rejected the SMH report and said that it contained inaccuracies about settlements between the HLG and clients. “Leighton reiterates that Fairfax has once again been inaccurate and unbalanced in its representation of Leighton’s operations, governance, values and accounting,” the company said.

It said HLG was preparing for an initial public offering in 2016, and added: “The business is diversifying its sector, geographic and client base and it continues to secure new work.”

Bribery

On 3 October Fairfax published allegations of bribery and misconduct by former senior Leighton management.

Citing internal company memos, Fairfax reported that Leighton senior executives knew about plans to pay alleged multimillion-dollar kickbacks in Iraq, Indonesia and Malaysia.

The same day Leighton hit back saying, in effect, that this wasn’t news – it had notified Australian police about a possible ethics breach relating to Iraq back in 2011.

The company said it was cooperating with investigations, had dismissed a senior executive, and that “over recent years” its management structure has been “substantially changed”.

“We are not aware of any new allegations or instances of breach of our ethics,” the company stated.

In a statement to staff Leighton CEO Hamish Tyrwhitt insisted there was no evidence to-date of bribery being committed, and that the personnel reported in the press as connected to “circumstances” were no longer with the company.

“We take exception to the sweeping criticisms of our governance and integrity, and we are vigorously defending the reputation of the Leighton Group and our people,” he said.

However, Leighton Holdings’ share price fell by 9% following the Fairfax news reports alleging corruption.

There are also signs that the media campaign against Leighton is putting pressure on the country’s financial regulator.

In November the Australian Securities and Investments Commission (ASIC) announced it would join Australian federal police in investigating Leighton.

SMH reports that ASIC chairman Greg Medcraft said his agency had signed a memorandum of understanding with the police in October, and also that Mr Medcraft had told Federal Parliament’s economics legislation committee that his agency was working to improve its handling of foreign bribery cases.