THE DISTILLERY: Leighton's chase

A quiet morning in mid-Autumn, a time for reflection, for savouring the morning dews and and mists of the longest day of the year (think about it); of walking in the falling leaves and wondering where that hour went and whether it's time for another coffee. It is, to reconnect  the synapses and process what our covey of jotters have brought us this morning. There's an insight or two, including an interesting suggestion about the succession at Woolies and some thoughts on the market. So it's off we go.
 
The Australian Financial Review (and other papers) report that "Treasury has dramatically revised up the hit to the economy of the summer natural disasters in Australia and warned of the impact of Japan's problems on the global economy." Slowdown anyone?
 
Fairfax's Adele Ferguson wondered this morning if Leighton Holdings can become a magician by tomorrow, as well as being a contractor with some problems: "Directors at Australia's biggest construction group, Leighton Holdings, will meet tomorrow to discuss the company's third quarter performance and whether they can pull a big rabbit out of a small hat to meet its 2011 profit forecast of $480 million. An agreement to sell 35 per cent of its Indian business to Welspun Group for $103 million should have been approved last week by Indian authorities and, until it is, the company cannot be paid. Leighton says it has received verbal approval, and written approval is imminent. But the clock is ticking. Leighton's revised profit guidance – cut from $510 million net profit to $480 million pre-tax profit for the year to June 30 – was largely based on this payment. This, coupled with tough conditions in the Middle East, the departure of a few senior executives and problems with key infrastructure projects, has triggered market concerns that it will have to cop further write-downs and impairment costs, and reduce its guidance yet again." Say the magic words, again... Abracadabra, asset sale! 
 
The Fairfax broadsheets revealed this morning: "The former Babcock & Brown chief executive Phil Green is poised to swoop on the carcass of the RAMS Home Loans business. Banks are also said to be running the ruler over RHG Ltd, the remnants of the failed mortgage business, and its $4.4 billion loan book. NAB is considered the frontrunner. Sources say the threat by RHG's chairman, John Kinghorn, to delist the company as part of a low-ball share buyback proposal means investors would be more likely to accept an alternative offer." This is the real Twilight, a financial vampire story involving zombies, the financial undead, able to survive any calamity, some with no shame.
 
The Australian reported that the market will be looking at Woodside this week: "All eyes will be on Woodside this week amid persistent rumours that Royal Dutch Shell is preparing to sell its 24.3 per cent stake and that BHP Billiton could be a buyer. Ongoing speculation has driven the local market higher in recent days, despite WA Premier Colin Barnett recently saying he preferred the oil and gas producer to remain independent."
 
And The AFR was confident: "The recent momentum in shares could gather more steam in April, historically the best month for Australian stocks. The benchmark S&P/ASX 200 could be poised to break above the key psychological 5000 mark for the first time in a year." And the Standard & Poor's 500 might go to a three-year high this week.
 
Meanwhile, the paper's economics writer, David Uren, claimed this morning: "Two almost matching $15 billion LNG plants are to be built on Gladstone's Curtis Island, but the project of British Gas now has an advantage over the other, developed by Santos. BG Australia managing director Catherine Tanna will make decisions about capital management informed by the Reserve Bank's internal thinking about exchange rates, long- and short-term interest rates and global market trends. As the new appointee to the Reserve Bank board, she will receive board papers highlighting the bank's thinking five days ahead of each board meeting and almost three weeks before the sparse minutes of the board's deliberations are made public. Santos chief executive David Knox, by contrast, depends on whatever insights he can get from his private bankers and public domain information."  
 
The Sydney Morning Herald's Jessica Irvine told us something for nothing on Saturday – we're saving more and retailing is hurting: "Households squirrelled away $74 billion in savings last year, or roughly $3300 for every man, woman and child, as Australians embarked on their steepest savings drive on record. In alarming news for retailers but comforting to a Reserve Bank determined to prepare for a mining boom, a Herald analysis of Bureau of Statistics figures shows that since mid-2005 households have saved $221 billion. But not all the money is parked in bank deposits or under the mattress; much of the saving has been used to reduce debts, including mortgages, credit cards and personal loans." We've heard and read this story now for months, and the SMH has just caught up?
 
Also on Saturday, The Australian's John Durie was not convinced by the story that the NBN didn't like the 14 companies it was negotiating with for construction contracts: "The NBN circus show has changed tack yet again, by engaging in talks with a Leighton-Siemens joint venture, Silcar, over taking a big slice of the $10-12 billion network construction. This comes nine months after a tender aimed at finding half a dozen firms to build the project ended this week with the rejection of all the bids and a claim of industry price-gouging. Not surprisingly, the industry is in uproar, and the Australian Contractors Association has expressed its "disappointment" at the results. In private, ACA members used different language and expressed bewilderment that NBN could stage a leaked story on the contract dismissal to accuse 14 different companies of overcharging and even collusion."
 
This morning The Australian reported: "Communications Minister Stephen Conroy has defended a shock move by the NBN Co to suspend indefinitely a crucial network building tender, saying it is important that the government-owned business sticks to its budget. In an interview with ABC television, Senator Conroy said he supported the NBN Co, which said the construction bids were too high. A shortlist of 14 companies had been whittled down to five, which was understood to have included Telstra, Silcar and John Holland." 
 
Fairfax's Malcolm Maiden wrote on the weekend: "Forecasts for the Australian dollar are being pushed higher after its rebound in the second half of March from just over 98 US cents to a new high of more than $US1.03. ANZ has told its clients that there is enough risk appetite in the markets to get the Australian dollar up to between $US1.05 and $US1.07 in the second half of this year; NAB says $US1.05 is achievable by mid-year; and AMP is even more bullish, with strategist Shane Oliver saying we should expect it to be at $US1.10 by year-end." And didn't a columnist in the Fairfax broadsheets quote a currency "expert" only a week or so ago saying the Australian dollar would fall, and mentioned a Sydney hedge fund manager claiming that Japanese investors would sell it down?
 
And John Durie also reported on Saturday: "As the folk at Woolies continue to speculate on the timing of the announcement of chief executive Mike Luscombe's departure, another insider, Grant O'Brien, has emerged as a possible candidate. O'Brien is chief operating officer of supermarkets and petrol but has led much of the negotiations over the hardware expansions and is said to be highly regarded at headquarters. The company has declined to comment on any of the speculation. However, some say April is a likely release date with a long handover until the annual meeting in November. This would enable Luscombe to round out a stellar career with the hardware launch in September before his final annual meeting as chief executive." Hmmmm.
 
Something must be happening because The Australian Financial Review also reported something similar: "Woolworths chairman James Strong has refused to confirm or deny renewed speculation that chief executive Michael Luscombe may retire as early as September." Double hmmmm.
 
The Australian reported this morning: "Southern Cross Media is expected to push ahead with a $475 million rights issue as soon as next week, in a deal that will test investor appetite for the media sector amid soft advertising conditions and choppy equity markets. It is believed the regional television and radio group will waste little time pushing ahead with the capital raising once acceptances for its $741 million takeover bid for metropolitan FM radio group Austereo pass the 90 per cent mark."
 
And The AFR has also reported: "Regional pay television company Austar United Communications has dismissed reports its largest shareholder, American media giant Liberty Global, has agreed to sell its shares to Foxtel." That original story of the agreement was reported by the same paper late last week. And the paper also reported that; "Skittish equity markets and the slowing growth of the TV advertising market have prompted private equity firm CVC Asia Pacific to consider postponing the $4 billion-plus float of Nine Entertainment Co until next year." What about poor ratings?
 
The AFR's Chanticleer columnist said on Saturday: "The retirement village sector is taking some heavy hits to its reputation as an inquiry uncovers financial horror stories." And there were some terrible tales in the column, a good piece.
 
The AFR also reported that: "The corporate regulator has admitted that a recent case in which a liquidator went broke but continued to oversee hundreds of corporate collapses and bankruptcies might provide a compelling argument for reform." And the paper also reported: "The corporate regulator is increasing surveillance of liquidators as complaints from business, creditors and investors over excessive fees, conflicts and long delays remain stubbornly high." Do you get a feeling that ASIC is dozing on this issue?
 
And Fairfax's Ian Verrender had a good comment on the private business dealings of Tony D'Aloisio, who's the head of ASIC and about to step down. The Fairfax business pages reported that: "he and his wife, Ilana Atlas, a prominent lawyer and company director, bought an upmarket winery from the receivers of a collapsed public company within months of D'Aloisio's appointment as Australia's top corporate law enforcer. The couple bought the Oakridge Estate winery from the rubble of the collapsed Evans & Tate just before Christmas in 2007. D'Aloisio was appointed head of the Australian Securities and Investment Commission in May that year, so Evans & Tate went down on his watch. How much did they pay? Was it market value or did they pick it up at a bargain price? These are questions for which there are no answers. That's because ASIC, the body D'Aloisio chairs, granted an exemption to Ferrier Hodgson, the external administrators of Evans & Tate, that relieved them of any obligation to file accounts for that year. Although there is no suggestion that D'Aloisio was in any way involved in the decision, it was an exemption granted in record time, just 39 days after the company went under and only eight weeks before Ilana Atlas signed mortgage documents to buy the business."