Leighton sells John Holland for $1.15 billion

LEIGHTON Holdings has confirmed it will sell its John Holland contracting division to CCCC International for $1.15 billion.

Marcellino Fernandez Verdes is the CEO of Hochtief, based in Germany.

LEIGHTON Holdings has confirmed it will sell its John Holland contracting division to CCCC International for $1.15 billion.

CCCI is the financing platform wholly-owned by the China Communications Construction Company, the fourth-largest construction company in the world by revenue.

The sale will reduce Leighton’s (LEI) gearing by around 10 per cent, while annualised revenue for the group will decline by approximately $3.7bn. Work in hand will fall by around $5.4bn, Leighton said, as more than 4000 employees transfer with the sale.

Leighton and CCCI have been in talks for the last month after rival suitors Samsung and ATEC Retail were edged out.

Leighton chief executive Marcelino Fernández Verdes said the group had achieved a value for John Holland that reflects its position as one of the country’s leading engineering and construction companies.

“The divestment of John Holland demonstrates the progress we have made with our strategic review initiatives over the past six months to strengthen the balance sheet, streamline the operating model and improve project delivery,” Mr Fernández Verdes said.

The sale is subject to approval by the Foreign Investment Review Board, but completion of the takeover is expected in the first quarter of 2015.

John Holland managing director, Glenn Palin, said joining with CCCI presented many opportunities for the business.

“John Holland and CCCI are extremely complementary, through a shared dedication to technical excellence and innovation, and a pride in company history and values,” Mr Palin said.

“With the strength and capability of CCCI backing us, John Holland is set for a bright future in the Australian infrastructure market.”

President of CCCI, Lu Jianzhong, said the group aimed to be a global transportation infrastructure business.

“There were very significant growth opportunities in the Australian market. It will be an important strategic addition to CCCC and we see [John Holland] as a strong independent competitor in the Australian market.”

In recent years, Chinese construction and engineering companies have emerged as major players globally, displacing Western and Japanese companies. According to International Construction Magazine, Chinese companies account for five out of ten top construction firms in the world by revenue.

China Communications Construction is the fifth largest builder in the world according to the magazine behind French engineering giant Vinci. However, the Chinese hold top three spots in the world. China State Construction and Engineering is the world’s largest builder.

In 2012, Chinese contractors took the largest share of total global revenues, at 23.2 per cent or $US344bn. Chinese companies have been expanding aggressively internationally in search of new opportunities as competition intensifies at home.

Though these companies have solid reputation for finishing big projects on time at home, a few of them have experienced difficulties in operating project overseas and especially where they can’t bring in their own workers and engineers.

For example, China Metallurgical Group, the former contractor for CITIC Pacific’s disastrous Sino Iron Project in Western Australia significantly underestimated the cost of construction that played a major role in CITIC’s budget blowout.

The future prospect of Chinese contractors is likely to get a boost from Beijing’s new international economic strategy to spur more infrastructures investment in Southeast Asia and Central Asia.

Beijing has funded three new large multilateral financial institutions under Chinese leadership, with a combined money pool of $US240bn — the New Development Bank, the Silk Road Infrastructure Fund and the Asia Infrastructure Investment Bank.

The Melbourne-based John Holland was acquired by Leighton in 2000 and provides construction, logistics and engineering services.