Shares in Australian builder Cimic Group plunged around 20% Thursday after it said it would exit the Middle East and sell its 45% stake in Dubai-headquartered BIC Contracting – formerly Habtoor Leighton Group – resulting in a one-off, A$1.8bn write-down in its 2019 results.
However, they recovered slightly by close of trading in Sydney today after ratings agencies Moody’s and S&P approved the decision.
Explaining the move in a note to the Australian Stock Exchange, Cimic cited "the context of an accelerated deterioration of local market conditions".
Moody’s said BIC Contracting (BICC) had produced consistent losses over 2015-17, noting that Cimic stopped reporting standalone results for it in 2018. In the last six years Cimic has been supporting BICC with substantial shareholder loans and financial guarantees.
"We understand that BICC is experiencing difficult market conditions because of regional macro and geopolitical factors," Moody’s said, noting the exit will let Cimic focus its resources on core markets and geographies of Australia, New Zealand and Asia Pacific.
S&P said its rating of Cimic stock remained unchanged: "In our view, even though Cimic’s decision to close its operations in the Middle East will increase its net debt, it is consistent with the group’s strategy and within tolerances for the current rating level. The exit will also limit the risks associated with operating in regions where the operational and legal framework is comparatively less stable and predictable."
Cimic said the A$1.8bn write-down includes an expected cash outlay net of tax of around A$700m during 2020 to meets BICC’s liabilities. The company said it had committed facilities and cash available to meet all obligations.â€¨â€¨It will not declare a final dividend for 2019.
Image: One of BIC Contracting’s projects is the main construction works for Fakeeh Academic Medical Center at Silicon Oasis, Dubai (BIC Contracting)