This article is from the Australian Property Journal archive
RATINGS agency Standard & Poor's has affirmed its 'BBB-/A-3' ratings on Leighton Holdings and removed the company from CreditWatch with negative implications following the board spill in March this year.
S&P credit analyst Craig Parker said there has been no change in the underlying credit quality of Leighton or its parent’s ultimate controlling shareholder, Spanish firm Actividades de Construccion y Servicios SA (Grupo ACS).
“We are satisfied that there is no deterioration in the governance arrangements between Leighton and its unrated German-based parent, Hochtief AG. However, our concerns about the limited separation between Leighton and its parent remain.
“We note that Hochtief has affirmed its governance arrangements and publicly stated that it will not be seeking to exercise its rights to a majority representation on the Leighton board following the resignation of Leighton’s independent directors. We expect that four new independent board members will be appointed to the Leighton board in the short term,” Parker said.
“We continue to be mindful of the potential influence that Hochtief and Grupo ACS could have on Leighton, particularly in the event of significant financial stress at a parent level. Our assessment of the weaker credit quality of Hochtief, incorporating the potential influence of Grupo ACS, will continue to be an important driver of our view on Leighton’s creditworthiness,” he continued.
Under the current governance arrangements between Leighton and Hochtief, Leighton operates under an independent board and management.
“We note that Grupo ACS holds 49.86% of Hochtief shares, but controls 54.28% of the voting rights in the company. Due to this ownership, we consider that the credit profile of Hochtief reflects that of Grupo ACS.
“As a consequence, the weaker credit quality of the parentage is an important factor and a constraint on our overall rating assessment of Leighton.
“The stable outlook reflects our expectation that Leighton will adhere to its more conservative financial policy and that this will not limit the group’s ability to grow its business and successfully execute on its offshore expansion strategy. We expect that the company’s funds from operations (FFO)-to-debt will be maintained at above 45% through the economic cycle. Although we believe that the Group ACS’s credit profile is weaker than ‘BBB-‘, we can accommodate a limited separation from the weaker parent due to Hochtief’s public statements that it will adhere to the long-standing governance arrangements,” Parker said.
“We could lower the rating if we felt that unexpected control was being implemented by the parent that caused us to treat Leighton as an integrated subsidiary of the Grupo ACS group,” Parker warned.
Property Review
