Leighton Considers Selling Units as Hochtief Tightens Grip

Leighton Holdings Ltd. (LEI), Australia’s biggest builder, may sell the John Holland business that built Australia’s parliament to reduce its debt, as controlling shareholder Hochtief AG tightens its grip on the company.

Leighton will also review its services and property units and consider taking on partners, Executive Chairman Marcelino Fernandez Verdes said in a regulatory statement today. It will also set up a new division focused on joint ventures with the government to tap A$125 billion ($117 billion) of new infrastructure spending planned in Australia’s budget.

“Our aim is not just to keep the company in the current situation,” Fernandez said on a media call after the announcement. “We will have a better company, more profitable.”

Fernandez, who’s also chief executive officer of Hochtief and has been named the next chairman of the German company’s controlling shareholder Actividades de Construccion & Servicios SA, declined to say whether any transactions would help Hochtief add to its current 70 percent holding in Leighton.

“Are we in Leighton’s conference call or Hochtief’s?” he said when asked of his plans for the stake.

Standard & Poor’s put Leighton’s credit on a negative watch in March on concerns the company would be run for the benefit of Hochtief and ACS shareholders.

“It’s really a sign that Hochtief and ACS are putting their stamp on this company,” Ross MacMillan, an analyst in Sydney at Morningstar Inc., said by phone.

Simplifying Structure

Leighton rose 1.7 percent to A$20.15 at the close in Sydney trading, compared with a 0.5 percent drop in the benchmark S&P/ASX 200 index.

Simplifying the company’s structure is “what a lot of people have been crying out for, for a long time,” MacMillan said. Leighton’s three domestic engineering companies, Thiess, John Holland, and Leighton Contractors, operate as independent companies in similar market segments with differing areas of emphasis.

Separate Leighton units bid against each other for Brisbane’s Airport Link project and a desalination plant near Melbourne, an activity that tends to drive down the profitability of construction contracts.

The company has been sued by shareholders over a A$1.1 billion writedown in 2011 to those two projects and its Dubai-based Habtoor Leighton Group joint venture, driven by rising costs.

IPO Plans

Any divestments should be completed by March 2015, Fernandez said. He won’t bring forward existing plans to make Habtoor Leighton Group, which worked on Dubai’s Burj Al Arab hotel, ready for an initial public offering in 2016.

“It’s a challenging date, but we considered that the organization and people and teams are willing to do it,” Fernandez said. “The market is in a good moment for testing if they are interested in some assets.”

John Holland has more than 5,000 employees and built Australia’s turf-roofed parliament building as well as the southern stand of the Melbourne Cricket Ground. It’s Leighton’s third-largest unit by sales, with A$4.5 billion of revenue in 2013 and A$198 million of earnings before interest, tax, depreciation, amortization and one-time items.

Leighton had A$404 million of net debt at the end of December. That was about 0.23 times Ebitda, the third-lowest level among 116 construction companies worldwide with more than $1 billion in sales that weren’t holding net cash, according to data compiled by Bloomberg.

Executive Chairman

Fernandez yesterday took on the role of executive chairman at Leighton, one of just five in Australia’s S&P/ASX 200 index, after his independent predecessor Bob Humphris retired.

“This is not a position I want to keep for too long,” he said of his current job. He’d like to see a separate and, “if possible, independent,” chairman for Leighton, he said.

Leighton has already moved to integrate its business more closely with that of its controlling shareholders.

John Holland has joined consortiums with ACS’s Dragados SA unit to bid for work on a tunnel and bridge connection across the inner north of Melbourne and is working with the same ACS unit on a rail tunnel project in northwest Sydney. Fernandez ran Dragados for eight years.

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

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net Terje Langeland, Garry Smith

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