by
William Arnold | Oct 08, 2013
The AFR and SMH have reported allegations of corruption involving the previous administration, including former CEO Wal King, in relation to: an Iraq kickback of $42m to secure an oil pipeline contract worth $750m, a 10% kickback on certain projects in Malaysia and $500k worth of steel stolen from Leighton by a former employee. The articles also mention potential illegal payments in Indonesia, India and Tanzania.
The company has responded by saying that it believes that the incidents are isolated, and that it is not aware of any new allegations or instances of breach of ethics.
The allegations mostly relate to Leighton’s offshore business which accounts for around 20% of revenues and 20-25% of earnings. The Australian business (around 80% of revenues) is not directly impacted by these allegations. Furthermore, the allegations relate to activities largely relating to the previous CEOs Wal King and David Stewart.
The impact of these allegations is obviously potentially negative but it is hard to see, for example, the USD 2022s widening more than say z-spread 20-30bps. In comparison the equity remains volatile falling some 12% since the news broke. Although the reputational allegations could negatively impact the company’s in its international markets (and the quantum of the financial impact is unclear at this stage), the impact on the broader group is not likely to be material.
On the positive side the group was able to secure huge contracts via these shenanigans - albeit by means perhaps questionable by Australian standards.