Leighton readies Middle East business for IPO

22 May 2012

Hamish Tyrwhitt, CEO of loss-making Australian contractor Leighton, has outlined plans to ready the company's Middle East joint venture, Habtoor Leighton Group (HLG), for an initial public offering (IPO).

Leighton bought into Al Habtoor group in 2007, when it acquired a 45% stake in the contractor for AU$ 870 million (US$ 707 million, at 2007 prices). The plan was to target opportunities in the Arabian Gulf market, particularly the UAE.

However, after several multi-million dollar write-downs and impairments, Leighton is now readying the business for sale. Mr Tyrwhitt said the company had separated HLG into two parts - a legacy business which is dealing with outstanding money owed to the company from a number of projects, and an on-going business, which he said was profitable.

"For the legacy business, we're working hard to recover those outstanding monies owed to us, and we're making progress, albeit slowly. We've employed extra resources to build the relationships which are critical in the Middle East. Recovery will reduce our funding commitments to HLG and strengthen our balance sheet," Mr Tyrwhitt said.

The second part of the strategy deals with the on-going business. Mr Tyrwhitt said Leighton planned to have an IPO ready for this part of HLG by 2016.

"This is about ensuring that HLG has the right structure, governance and projects to make it a sustainable business into the future," he said.

Weak start

This year started disappointingly for Leighton, after write downs on two major projects in Australia - the Brisbane Airport Link project and Victoria Desalination project - continued to overshadow results, after dragging the company to a full-year loss in 2011.

Leighton - which itself is a subsidiary of German contractor Hochtief - reported a first quarter net loss of AU$ 80 million (US$ 79 million) after being hit by further losses on the projects, which are now running late after facing multiple set-backs.

However, while it said it expected the beleaguered contracts to take a further AU$ 254 million (US$ 252 million) out of its 2012 full-year profit figure, Mr Tyrwhitt was confident that Leighton would return to profit this year.

He said, "For the full year to 31 December, 2012, the company expects to report a profit after tax of between AU$ 400 million and AU$ 450 million (US$ 397 million and US$ 447 million). Beyond this year, the Leighton Group remains well placed."