Hochtief AG (HOT), Germany’s largest publicly traded builder, said pretax profit may fall 50 percent this year after its Australian unit predicted a loss and said it would sell stock. Hochtief shares fell the most in two years.
The company will take up its full allotment in Leighton Holdings Ltd. (LEI)’s A$757 million ($800 million) share sale, it said in a statement today. The unit will sell new shares at A$22.50 apiece through a 1-for-9 entitlement offer, a 22 percent discount to the last traded price of A$28.94 on April 6, according to a separate statement.
The share sale comes amid a hostile takeover of Hochtief by Spain’s Actividades de Construccion & Servicios SA and the resignation of Herbert Luetkestratkoetter, replaced as chief executive officer by Frank Stieler. Over the last five years, Hochtief has earned an average of almost three-quarters of its pretax profit from the Asia-Pacific region, where Leighton is the main contributor.
“The writedowns and capital raising look to have been necessities,” said Will Seddon, who helps manage $350 million at White Funds Management Pty in Sydney. David Stewart, who became CEO of Leighton on Jan. 1, “will have taken the opportunity to clear the decks,” he said.
Hochtief plunged as much as 10 percent to 61.67 euros, the sharpest drop since April 20, 2009, in Frankfurt trading. That comes on top of a 9.5 percent drop in the previous two trading days. The stock traded at 62.85 euros at 11:57 a.m., paring the company’s market value to 4.84 billion euros ($7 billion).
Stieler Takes Over
Hochtief, which owns 54 percent of Leighton, said yesterday that Stieler will take the top job following the company’s annual shareholder meeting on May 12. Madrid-based ACS, which plans to raise its stake in the German company to more than 50 percent, said today that Stieler is an “excellent candidate” to lead the company.
Luetkestratkoetter will receive a severance package of 4.08 million euros and will take on an advisory role to the company, the executive said on a conference call.
“I am a professional and if I know one thing it’s this: The office of an executive board chairman is one where you must have the full trust of big investors,” said Luetkestratkoetter, who led opposition to the takeover by ACS. “I have watched over the interests of this company, all stakeholders, shareholders and employees. You can’t necessarily satisfy everyone.”
The Essen, Germany-based builder had been expecting a pretax profit of about 1 billion euros this year, according to a March 23 statement. The figure last year was 756.6 million euros. Net income this year will probably rise, the company said today, without elaborating. Earnings forecasts for 2012 and 2013 remain the same, it said.
Leighton, Australia’s biggest builder, predicted a net loss of A$427 million in the year ending June as it takes A$907 million in writebacks and impairments after delays and cost overruns at projects including the Brisbane Airport Link road and a desalination plant in Victoria state.
Hochtief CEO Luetkestratkoetter said today the profit warning at Leighton was “very surprising” and that the company would work closely with its Australian unit. The Sydney-based builder will likely change bidding procedures and may sell assets, said CEO Stewart, who replaced Wal King, leader of the company for 23 years.
Leighton’s shares have been halted from trading in Sydney until April 14, pending the capital raising. The builder has fallen 6 percent this year, compared with a 4.8 percent gain for the benchmark S&P/ASX 200 index. The company predicted an annual profit of A$480 million two months ago.
Leighton’s entitlement offer is fully underwritten by UBS AG with proceeds to be used to strengthen the builder’s balance sheet and support its investment-grade credit ratings, it said.
The company’s debt is rated BBB by Standard & Poor’s, the second-lowest investment-grade level. Moody’s Investors Service rates it Baa1, the third-lowest investment grade.
The A$4.2 billion Brisbane Link, which connects Australia’s third-largest city with its airport via a new toll road, will lose about A$430 million by the time it’s completed amid increased design costs, the need to order additional construction materials and tunneling expenses. The project was originally budgeted for a pretax profit of A$407 million.
The A$3.5 billion desalination profit will earn Leighton just A$6 million, rather than the original forecast of A$282 million, amid wet-weather delays and higher labor costs, Leighton said today.
“This is the most serious challenge faced by the Leighton group in the last 20 years and we apologize to the shareholders for the situation they are now in,” Stewart told reporters on a conference call today. “We will be enhancing our focus on tender accuracy and risk identification.”
The company may sell some assets, he said, declining to identify what may be sold or how much the company may seek to raise. Deputy CEO Bill Wild will also retire from Leighton at the end of June, the company said.
Leighton took an A$200 million impairment charge against its Middle East venture with Al Habtoor Group as the business needed additional funding and continues to face delays in recovering debts.
Al Habtoor Leighton Group, which was formed in 2007, was previously written down to A$845 million from A$1.144 billion as the global financial crisis curbed demand for new projects.
“Their entry into the Middle East was very poorly timed,” said White Funds’ Seddon.