Leighton Falls Most Since 2011 on Iraq Corruption Report

Leighton Holdings Ltd. (LEI) shares fell the most in more than two years after the Age newspaper said former executives knew of alleged corruption at the company. Australia’s biggest builder said the revelations weren’t new.

Leighton allegedly paid bribes to win contracts and former chief executive officers Wal King and David Stewart were aware of the conduct, according to the report, versions of which were published in other Fairfax Media Ltd. (FXJ) papers. King denied the allegation and a spokeswoman for Stewart declined to comment.

Leighton has been under investigation by the Australian Federal Police since at least February 2012 after the company reported potentially illegal activity at its subsidiary Leighton Offshore Pte. in Iraq. The alleged activity involved payments the subsidiary may have made “in connection with work to expand offshore loading facilities for Iraq’s crude oil exports,” the company said at the time.

“Leighton takes these accusations seriously and is deeply concerned about the suggestions of impropriety,” the Sydney-based company said in a regulatory statement today. “We are not aware of any new allegations or instances of breach of our ethics.”

The stock dropped 10 percent, its biggest slump since April 14, 2011, to A$17.54 at the close in Sydney. The yield on Leighton’s 5.95 percent bonds due November 2022 rose 46 basis points, the most since they began trading in November, to 6.482 percent, according to BNP Paribas prices.

Photographer: Ian Waldie/Bloomberg

The logo of Leighton Holdings Ltd., is displayed on their Sydney headquarters in Sydney. Close

The logo of Leighton Holdings Ltd., is displayed on their Sydney headquarters in Sydney.

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Photographer: Ian Waldie/Bloomberg

The logo of Leighton Holdings Ltd., is displayed on their Sydney headquarters in Sydney.

Hochtief Slump

“Being in a negative news story is likely to impact sentiment toward the stock. The extent of that depends on how long the story stays around,” Heath Andrews, an analyst at Royal Bank of Canada in Melbourne, said by phone. “It tempts retail investors to sell out and could spook institutional shareholders as well.”

Hochtief AG (HOT), which has a controlling 56 percent stake in the Australian company, fell 7.9 percent, the most in almost two years, in Frankfurt trading yesterday after the report was published on websites. Today, shares of the German builder rose 0.7 percent to 60.59 euros as of 10:39 a.m.

The reports quote from an alleged memo from Stewart dated Nov. 23, 2010. Former Leighton International managing director David Savage said he and King knew of an alleged A$42 million bribe paid in relation to work in Iraq, the newspaper quoted the memo as saying.

‘Didn’t Exist’

Stewart was chief executive designate at the time, after King announced his retirement after 13 years in the company’s top job on Sept. 13, 2010.

King said by phone that he had no prior knowledge of any wrongdoing at the company, that the Australian Federal Police hadn’t contacted him about the case, and that the memo quoted didn’t exist.

“We had compliance committees, ethics committees, oversight committees. Every effort was supplied to make sure the company was compliant,” he said. Stewart was acting chief executive officer from November 2010 onwards, he said.

Sarah Conway, a spokeswoman for Laing O’Rourke Plc’s Australian division where Stewart is now chief executive officer, declined to comment on his behalf. David Price, a spokesman for Vancouver-based KazaX Minerals Inc. (KZX) where Savage is chief executive, didn’t respond to a telephone message.

Fiona Tyndall, a spokeswoman for Leighton, also declined to comment on the allegations about former executives, citing the ongoing police investigation. “Over recent years the management structure of the business has been substantially changed,” the company said in its statement today.

Crude Exports

Leighton Offshore billed Iraq’s state-owned South Oil Co. $733 million for a two-and-a-half year project to more than double exports from Iraq’s crude oil export terminal, according to the company’s website.

South Oil Co. also paid Leighton $518 million for a separate project to stabilize and expand the existing crude terminal, according to the website. Leighton had revenues of A$19 billion in the 2012 calendar year and had a contract book valued at A$40 billion at June 30.

The Age newspaper quoted Stewart’s alleged memo as saying Savage reported Leighton had paid kickbacks to subcontractor Unaoil in relation to the Iraq work. An A$87 million contract paid to Unaoil had a real value less than half the amount billed, the paper quoted the memo as saying, citing Savage.

Leighton Offshore paid Unaoil $80 million for building an onshore pipeline and clearing unexploded bombs as part of the Iraq oil terminal project, according to the subcontractor’s website.

Manager Fired

A receptionist at Unaoil’s Monaco headquarters office said no one was available to comment, and a message earlier left on the company’s answer phone outside of office hours wasn’t returned. Unaoil is owned by Singapore-based UnaEnergy Pte.

Leighton said in July 2012 it had dismissed a senior manager after a review of projects in Iraq carried out by the subsidiary “identified instances of failures to meet governance standards in respect of the proper documentation of contractual arrangements.”

Leighton also said it wouldn’t comment on a case relating to a barging contract in Indonesia, because the matter is before the courts.

It wasn’t known if there had been “any wrongful or illegal conduct, or whether there will be any adverse financial consequences for the company” in relation to the Iraq case, the company said in an April 18 regulatory statement.

The Australian Federal Police, which investigates offshore matters, is “treating the Leighton case as a priority, and we are working to ensure that the matter is thoroughly investigated,” the police said in a statement on its website.

Andre Khoury, a spokesman for the Australian Securities & Investments Commission, the country’s stock market regulator, said by e-mail that the agency didn’t enforce the laws governing bribery of foreign public officials and the matter was being managed by the Australian Federal Police.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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