Leighton disputes credit downgrade

20 October 2011

Australian contractor Leighton has claimed that rating agency Standard & Poor's (S&P) was wrong to downgrade its credit rating a notch - a decision which it said was not a true reflection of its credit quality.

S&P lowered Leighton's credit rating from BBB/A-2 to BBB-/A-3, claiming that the contractor's risk profile had weakened following its AU$ 409 million (US$ 425 million) loss for the 2011 financial year, brought on by project overruns and poor returns from its Middle East business.

The rating agency said, "We consider that the credit quality of Leighton's German-based parent Hochtief, which is an important factor in our overall rating assessment of Leighton, has deteriorated due to the losses at the Leighton level".

It added that its view of the credit quality of Hochtief was influenced in turn by the financial health of its new controlling shareholder, Spanish contractor Actividades de Construccion y Servicios (ACS).

But Leighton CFO Peter Gregg said the company refuted the decision and believed it should have retained its BBB credit rating, adding, "We believe this is an unfair assessment and one that is not borne out either by the governance arrangements that we have in place or many years of practice. Hochtief has been, and continues to be, a supportive shareholder."

Resignations

The news comes after both the chairman and CEO of Leighton resigned in August this year. Chairman David Mortimer stepped down on 24 August, while CEO David Stewart resigned on 25 August, just over a week after the company reported the full-year 2011 loss.

And the Leighton loss had a direct impact on the financial health of its parent, Hochtief, which recorded a net loss of € 156 million (US$ 223 million) for the first half of the year, compared to a € 88 million (US$ 126 million) profit last year.

S&P said Leighton had a stable outlook, but its ratings could be lowered again for several reasons, including if Leighton's financial profile deteriorated further, and, "if we believe that Leighton's strategic direction is being driven by Grupo ACS or Hochtief, including any growth ambitions of the parent companies."

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