Struggling Al Habtoor Leighton to receive US $272m

HLG's Voyer said the company would focus more on infrastructure projects.

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Write-downs in Al Habtoor Leighton has been cited as a key reason for Leighton Holding to raise AUD757million ($800m) from shareholders and inject AED1billion ($272m) into the UAE venture, as the Australian company confirms a loss of around AUD427million ($450m )this year.

The St Leonards, New South Wales-based contracting giant said the joint venture with Al Habtoor in the UAE added to the falling profits expected from key infrastructure projects in its home country, leading to expectations that earnings will be AUD907million below the previous forecast of $480 million after tax.

“We are acting decisively to deal with write-backs on these two problem projects and with the investment in the Middle East,” David Stewart, CEO, said in a statement. “While it is very frustrating to have to deal with the financial consequences, it does now leave Leighton well positioned to return to more normalised growth and earnings in 2011/12 and beyond.

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“Normally we would not review the carrying value of HLG until June but due to deteriorating cashflow from legacy projects and the requirement for the injection of AED1 billion in additional shareholder loans, we believe it prudent to review the carrying value of HLG.

“Conditions for our business in the Middle East are still proving to be volatile, recovery of receivables has not improved and the winning of new projects remains slow.”

Leighton Holding stopped the trading of its shares in Australia on 7th April until its finalised its review of its earnings forecast, completed yesterday.

“We believe there are no systemic issues in the business, but a rigorous review is being undertaken to investigate the cause of poor project performance," said CEO David Stewart on a call with investors, signalling that the money raising would rebuild the balance sheet.

Australia-based projects such as Brisbane Airport Link and Victorian Desalination have seen heavy write downs to compound the sharply falling value from its Middle East joint venture.

Stewart reckons “poor productivity and inclement weather have hampered the desalination project, currently under construction at Wonthaggi in Victoria.

The AUD$757 million capital raising will be achieved through a 1-for-9 rights issue at AUD$22.50 per share, according to The Wall Street Jorunal.

In 2007 Leighton paid AU $870 million for a 45% stake in Dubai-based Al Habtoor Engineering – which boasted $4.4 billion of total work in hand with predicted earnings of $2.75 billion for 2007-2008 - to create Al Habtoor Leighton

Al Habtoor’s building arm, Al Habtoor Engineering Enterprises, was moved into the resulting group, which provides direction for its four operations divisions: Al Habtoor Engineering Dubai, Al Habtoor Engineering Abu Dhabi, Al Habtoor Engineering Qatar and Gulf Leighton.

“While some new work has been awarded recently, including a joint venture to build the $585 million Al Mafraq Hospital in Abu Dhabi and the $105 million Abu Dhabi Islamic Bank’s new headquarters in Abu Dhabi, other opportunities remain slow to come through.

“We have revised down our estimates of the contribution to be booked from the HLG business for the remainder of the year due to provisioning, including receivables. Leighton’s equity accounted share of this expense is worth $120 million,” said Mr Stewart.

“However, the additional provisioning and shareholder funding required in the current year impacts the carrying value of the asset. We have written down the book value of investment in HLG by a further $200 million, reflecting our revised expectation of future earnings from that business.

“This combination of the provisioning and increased impairment results in a revised book value for HLG of $525 million,” said Mr Stewart.

Al Habtoor Leighton, as with rivals, has been forced to diversify away from the UAE as the property market collapse in Dubai caused the cancellation of many projects and a stoppage of new investment from banks to developers. In January Khalaf Al Habtoor, chairman of the Al Habtoor Leighton Group, said the company was owed more than AED4 billion in payments from clients.

“[We have been waiting] for more than a year and a half. This is not just money that’s owed from UAE companies, it’s the whole of the GCC, for Habtoor Leighton,” he told Construction Week’s sister publication Arabian Business.

“We’ve started to conceptualise more to Saudi Arabia and Qatar,” Laurie Voyer, CEO, told CW in October. “No one could have anticipated the last year and the adjustment, in looking at those markets, had to be made. At the same time we’ve reinforced our people in Abu Dhabi.”

Moving out of Dubai also entailed a change in project focus, with fewer tall buildings and more infrastructure projects.