MELBOURNE Leighton Holdings LEI.AX, Australia's biggest builder, came under fire on Thursday from media reports saying corruption and bribery were widespread at the company under previous management, sending its shares down 10 percent.
Investors and analysts played down the media reports, saying they reopened old wounds tied to previous management rather than inflicting fresh reputational damage, and pointed to Leighton's efforts to improve ethics compliance over the past two years.
"My reaction when I read it this morning is that it's just a rehash of old news," said Don Williams, chief investment officer at Platypus Asset Management, which does not own shares in Leighton.
The allegations hit just as Leighton, controlled by Spain's ACS (ACS.MC), has been emerging from a rough patch due to hefty losses on two big projects and faces challenges recouping payments from clients and a downturn in new mine construction.
Citing internal company memos, Fairfax media reported that Leighton senior executives, including highly regarded former CEO Wal King, knew about plans to pay alleged multimillion-dollar kickbacks in Iraq, Indonesia and Malaysia. King denies any wrongdoing.
In a near three-page statement to the Australian Securities Exchange made in response to the media reports, Leighton said it was not aware of any new allegations or instances of ethics breaches beyond already disclosed bribery cases in Iraq and Indonesia.
Australian federal police are investigating potential corruption relating to Iraq contracts, after Leighton voluntarily reported a possible ethics breach in 2011.
The company also said on Thursday it had sacked a senior executive last year and has gone to court seeking to recover A$5.6 million from a former employee for alleged breaches of contractual duties tied to the construction of a barge in Indonesia for a Leighton unit.
It declined to comment further on the Iraq and Indonesia breaches as they are under investigation or in court.
Nowhere in its statement did Leighton deny wrongdoing, but it said the Iraq and Indonesia cases were "exceptional instances".
Former CEO Wal King, who retired in 2011 after running the company for 23 years, denied on Thursday that he was "in the know" about the alleged misconduct and said he would take all steps necessary to protect his reputation.
"Mr King emphatically denies all allegations of wrongdoing made against him in those news stories," a statement released by his office said.
Simon Fitzgerald, an analyst at Moelis Australia Securities, said it was important to note that the accusations concerned former management and that Leighton has taken clear steps to improve its governance.
"In terms of whether it creates reputational issues from here, the damage has already been done, but perhaps moreso in the regions where these issues occurred," he said, adding it won't hurt Leighton in Australia, where it remains one of the few companies that can handle large, complicated projects.
Shares in Leighton, majority owned by Germany's Hochtief AG (HOTG.DE), which is in turn controlled by ACS, slumped 10.4 percent to close at a one-month low of A$17.54.
($1 = 1.0675 Australian dollars)