BUILDING and contracting group Leighton Holdings is understood to be planning a possible mining joint venture in Mongolia with one of the world's richest and most powerful men, Russian billionaire Oleg Deripaska. King
The Russian is expected to arrive in Sydney in two weeks.
And Leighton is also expected to announce shortly after that it has obtained a $1 billion oil and gas contract in India, which will lift its work in hand to a record $27.8 billion.
Any deal with Mr Deripaska could have the effect of radically overhauling Leighton's sometimes awkward ownership structure, dominated by 55 per cent-owner Hochtief, a German engineering group. Last year, Mr Deripaska built a 10 per cent stake in Hochtief.
It could also place Leighton at the centre of Russian infrastructure and mining.
Ernst and Young estimates that Russia will invest more than $US264 billion ($280 billion) in transport infrastructure modernisation by 2010.
The mining industry is one of the most important industries in the Russian economy since it accounts for 20 per cent of global nickel and cobalt production, 5-7 per cent of coal and iron ore production, and a large share of the output of some non-ferrous and rare earth metals, platinum group metals and diamonds.
Russia also contains important reserves of nickel, gold and silver.
Mr Deripaska, who has an estimated $US22 billion fortune, is a key figure in Russia's mining industry through his Basic Element empire.
Basic Element controls the world's biggest aluminium giant Rusal, along with 30 to 40 major power stations in Siberia, airports, manufacturing and finance.
The Australian understands that Mr Deripaska is keen to get access to mining technology and will visit some of Leighton's mining operations with a view to clinching a deal.
Leighton is the world's biggest contract miner.
Mr Deripaska is not new to Leighton. he knows about it via his tilt at Hochtief, which holds four of Leighton's 12 board seats.
He had planned to buy a majority stake in Hochtief to allow him to tap into the infrastructure giant's expertise in large infrastructure projects, but the move sparked concerns in Germany, with officials reportedly trying to link him to the Russian mafia.
Mr Deripaska is now taking legal action. He is a close friend of former Russian president Vladimir Putin, and there have been numerous articles linking him to the Russian mafia, although noting has been proved.
Hochtief has been a shareholder in Leighton since 1983. Through its various owners, Hochtief has been a passive investor, but more lately it has become an albatross, making Leighton stock relatively illiquid and bearing down on its credit rating.
On January 28, Leighton's credit rating was downgraded by Standard & Poor's from BBB-plus to BBB because of "the weak credit quality of Leighton's unrated German parent Hochtief".
In a press release Leighton wrote: "The rating revision reflects the potential adverse influence that the parent could have on Leighton's credit quality in the event of significant financial stress at Hochtief."
The intentions of Hochtief have long been a topic of speculation for Leighton, and Mr Deripaska's imminent arrival has revived discussion.
Given a new set of shareholders -- Spanish conglomerate ACS Group holds 25 per cent of the Hochtief, while Mr Deripaska owns 10 per cent through Rasperia Trading -- it would not be out of the question for ACS to sell out to Mr Deripaska and
enable him to free Leighton from the shackles of Hochtief.
ACS paid a huge premium for its 25 per cent stake in Hochtief in a move that was funded with debt.
Hochtief's dividend payments do not cover these debt repayments.
As Hochtief stands, it has an open share register and most of its businesses are undervalued.
Indeed, one analyst suggests that more than 45 per cent of Hochtief's share valuation is derived from Leighton, and Leighton provides more than 70 per cent of Hochtief's profit.
LEI Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
