SYDNEY Leighton Holdings Ltd LEI.AX, Australia's largest construction firm, said it may sell its John Holland roads and rail business as Spanish-controlled majority owner Hochtief AG (HOTG.DE) seeks to cut debt and potentially finance a bid for full ownership.
Germany-based Hochtief, controlled by Spain's ACS Actividades de Construccion y Servicios SA (ACS.MC), has been building its stake in Leighton since first buying a majority holding in 2001. In March, Hochtief offered to up its stake to 75 percent, raising concerns about the effect that would have on ACS's debt levels.
Selling John Holland, which analysts say could fetch A$800 million ($750 million), as well as the property and services businesses would cut debt as Hochtief, which currently has 69.62 percent of Leighton, prepares to buy 75 percent and potentially move to full ownership.
"The key aim I believe is to reduce debt," Morningstar analyst Ross MacMillan said.
"Leighton has complex debt financing. If that debt can be reduced substantially that would allow Hochtief to increase its stake above 75 percent."
Leighton shares were 2 percent higher at A$20.25 after the announcement, in a weaker overall market. In a statement to the Australian Securities Exchange on Thursday, Leighton's new Executive Chairman and Chief Executive Officer Marcelino Fernandez Verdes said the company would simplify its operating model to focus on its mining, construction, public-private partnerships and engineering businesses.
It would consider options for its 42-year-old property business, its services business and John Holland, "including the potential divestment or introduction of new partners to these businesses".
Sale proceeds would be "used to reduce our gearing and strengthen our balance sheet so as to increase our competitiveness", added Verdes, who was appointed CEO in March and executive chairman on Wednesday.
Leighton is in Hochtief's Asia-Pacific division, which saw pretax profit rise by over a fifth despite a weaker Australian dollar that cut the value of new orders, work done and sales in 2013 compared with 2012.
ACS's stake in Hochtief recently rose to around 55 percent, from around 49 percent, when the German builder canceled 10 percent of its treasury stock.
(Reporting by Byron Kaye; Editing by Stephen Coates)