This article is from the Australian Property Journal archive
STANDARD and Poor's Rating Services has placed Leighton Holdings on CreditWatch with negative implications following the shock resignation of the chairman and two independent directors.
The board spill was not well received by the market, Leighton shares fell $1.50 to $20.20 on Friday.
Leighton’s chairman Stephen Johns and independent directors Wayne Osborn and former Reserve Bank of Australia governor Ian Macfarlane resigned following a breakdown in relations with the major shareholder Hochtief (54% stake), which is majority owned by Spanish firm Actividades de Construccion y Servicios SA (ACS).
Leighton said they resigned because their view is that Hochtief no longer supports an independent board at Leighton. Under the current governance arrangements between Hochtief and Leighton, Leighton operates under an independent board and management.
The resignations were in response to Hochtief executive chairman Marcelino Fernandez Verdes, who recently joined the Leighton’s board and interfered with the appointment of a new independent director.
In his letter of resignation released to the media after Leighton refused to distribute it, Johns told Leighton’s board that relations with Hochtief had completely broken down and he could no longer operate as an independent chairman.
“These actions gave rise to serious concerns that Hochtief no longer supported the important principle of board independence,” Johns wrote.
All five independent Leighton directors protested to Verdes after he privately requested Johns step down and requested a special board meeting prior to the announcement of the resignation. However Hochtief’s representatives on Leighton’s board refused to attend.
‘‘Hochtief provided a wholly unsatisfactory response to this letter, uncommittal to the core issue of Hochtief’s support of the corporate governance protocols,” Johns said.
Johns requested the full correspondence between him and Hochtief to be disclosed to the market in the interests of full continuous disclosure and wanted to release his letter of resignation along with the announcement.
However Leighton only released a short statement stating that the three directors had resigned.
S&P’s credit analyst Craig Parker said following the resignation of the directors, the credit quality of Leighton could be affected by the parent’s weaker credit profile.
“We are mindful of the shareholder base of Hochtief, where 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, our view of the weaker credit quality of the parentage is an important factor and a constraint in our overall rating assessment of Leighton.
“We also consider Hochtief’s potential future influence on Leighton and of Grupo ACS’s holding in Hochtief’s equity, particularly in the event of significant financial stress at a parent level. Our assessment of the 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. The subsequent response by Leighton to these board changes will be an important indicator as to the extent to which we believe that the influence of its parents affects the company’s strategic direction and governance arrangements,” Parker said.
“We could lower the rating if we felt that the control exerted by the parent meant that we could treat Leighton as an integrated subsidiary of the Grupo ACS group. We believe that Grupo ACS displays a weaker credit profile than the current ‘BBB-/A-3’ ratings on Leighton.” Parker warned.
Meanwhile Leighton fired back with a subsequent statement and said the remaining board of directors do not agree with all of the conclusions drawn by the three.
“There have been a series of events in recent months which are open to interpretation. The remaining Australian directors have a different view about how to interpret these events to the resigning directors,” Leighton said in a statement.
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