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Sunday 18 March 2012

12-53MR Leighton Holdings complies with three ASIC infringement notices for alleged continuous disclosure breaches and ASIC accepts compliance enforceable undertaking

Leighton Holdings Limited (Leighton) has paid a total of $300,000 after ASIC served three infringement notices alleging the company had not complied with the continuous disclosure provisions of the Corporations Act 2001 (the Act) and relevant provisions of the Australian Securities Exchange (ASX) Listing Rules. In addition, ASIC has accepted an enforceable undertaking (EU) from Leighton which commits the company to reviewing its disclosure practices.

ASIC Chairman Greg Medcraft said the enforcement outcome achieved in this case utilises the variety of regulatory tools available to ASIC to maintain overall integrity of our markets.

‘Compliance with continuous disclosure provisions goes to the heart of ASIC’s priority of promoting fair and efficient markets,’ Mr Medcraft said. ‘All listed companies should have procedures in place to ensure that they comply with their continuous disclosure requirements.’

Mr Medcraft said infringement notices are just one effective regulatory tool ASIC has at its disposal in maintaining confidence in the integrity of our markets and were a timely and efficient remedy for dealing with some breaches of the continuous disclosure laws.

‘Furthermore, the enforceable undertaking negotiated here is an effective forward-looking regulatory result, representing a commitment from Leighton regarding its continuous disclosure procedures,’ Mr Medcraft said.

The infringement notices were issued following an investigation by ASIC into the matters in an announcement Leighton made to the market on 11 April 2011, in which Leighton announced a write down of $907 million to its profit forecast.

The alleged continuous disclosure breaches related to information concerning Leighton’s Airport Link project, its Victorian Desalination project and its investment in the Al Habtoor Leighton Group that were not immediately notified to the ASX.

Leighton paid the three penalties of $100,000 each on 16 March 2012 in compliance with the infringement notices. As provided by the Act, compliance with the notice is not an admission of guilt or liability, and Leighton is not regarded as having contravened subsection 674(2) of the Act (Obligation of an entity to provide information to market operator).

Download a summary of the infringement notices (PDF)

Under the EU, Leighton will engage an independent consultant to review and recommend changes to its continuous disclosure procedures, and Leighton has agreed to implement those recommendations. The progress and effectiveness of any changes to Leighton’s procedures will be subject to an annual review for three years.

Download the enforceable undertaking

Background

The Airport Link Project

Thiess and John Holland (subsidiaries of Leighton) were contracted to design and construct various infrastructure projects relating to the Airport link in Brisbane (the Airport Link Project).

ASIC’s view is that by 18 March 2011 Leighton was aware that the previous forecast final profit margin for the Airport Link Project would not be achieved due to significant cost increases, and that reviews had been carried out which forecast a substantial loss relating to the project, of between $182 million and $610 million. ASIC’s view is that Leighton should have announced this to the market immediately.

Between 7 and 11 April 2011 Leighton’s securities were in trading halt, at Leighton’s request.

ASIC’s view is that, although by 18 March 2011 the exact amount of the Airport Link Project’s forecast loss had yet to be finalised, the previous forecast profit had been wiped out and the project contributed significantly to the change in Leighton expecting a profit of $480 million after tax (as it had announced in February 2011) to a loss of $427 million for the 2010/11 financial year, which Leighton announced to ASX on 11 April 2011.

The Victorian Desalination Project

A joint venture between Thiess (Leighton subsidiary) and Degrémont (independent French company), was contracted by the AquaSure consortium to design and construct the Victorian Desalination Project.

ASIC’s view is that by 18 March 2011 Leighton was aware that the completion date for the Victorian Desalination Project was likely to be delayed and the costs of the project had increased substantially, so that Thiess’ forecast profit on completion for the project would be materially reduced.

In ASIC’s view, the Victorian Desalination Project was a major project, significant changes to the forecast final profit margin for the project were important to Leighton’s financial position and should have been announced immediately.

Between 7 and 11 April 2011 Leighton’s securities were in trading halt, at Leighton’s request.

On 11 April 2011 Leighton announced that inclement weather and poor productivity had impacted the construction on one site at the Victorian Desalination Project and that this may "trigger a one off $15m penalty and extra costs which have been included in our revised forecast” and that the forecast profit for the Victorian Desalination Project had been written back by $282 million to $6 million, before tax.

The Al Habtoor Leighton Group

The Al Habtoor Leighton Group (AHLG) is registered and based in Dubai in the United Arab Emirates. AHLG is a contractor specialising in construction, infrastructure, oil, rail and gas. Since 2007 Leighton has owned 45% of AHLG.

In ASIC’s view, Leighton was aware on 18 March 2011 that the financial position of AHLG had deteriorated, as it had received (i) a revised cash flow forecast for AHLG; (ii) a request from AHLG for the drawdown of a previously agreed shareholder loan to be accelerated; and (iii) a request from AHLG for further shareholder funding of $230 million (AED850 million).

ASIC’s view is that on 18 March 2011 Leighton was therefore aware it would need to revise the valuation of its investment in AHLG and it should have announced this immediately.

Between 7 and 11 April 2011 Leighton’s securities were in trading halt, at Leighton’s request.

On 11 April 2011 Leighton announced that the value of its investment in AHLG had reduced by $320 million, that AHLG had requested a “further AED1bn” in funding, that Leighton had “provided $289m of shareholder loans to HLG and pledged cash as security against a AED500m loan facility” and that Leighton had reviewed the carrying value of HLG.

Last updated: 18/03/2012 12:00