15/05/2019. Hedge funds may be behind CIMIC's $1.9b sha

15/05/2019 Hedge funds may be behind CIMIC's $1.9b share plunge, investor claims
https://www.smh.com.au/business/companies/hedge-funds-may-be-behind-cimic-s-1-9b-share-plunge-investor-claims-20190509-p51ln7.html 1/3
BUSINESS COMPANIES CONSTRUCTION
Hedge funds may be behind CIMIC's
$1.9b share plunge, investor claims
An investor who sold out of construction giant CIMIC before a dramatic share price rout wiped
$1.9 billion off its market value this week believes hedge funds are betting against the stock.
CIMIC’s share price plunged up to 12 per cent on high volumes of trading on Monday after a
research report from Hong Kong-based GMT accused the company of “dressing up” its financia
statements following its takeover by multinational Spanish infrastructure group ACS in 2014.
The ASX-listed company, formerly known as Leighton Holdings, is constructing multiple large-
scale infrastructure projects including Melbourne’s $11 billion Metro Rail tunnel, Brisbane’s new
$5.4 billion Cross River Rail and Sydney’s mega $16.8 billion WestConnex motorway.
By Simon Johanson
May 9, 2019 — 2.57pm
CIMIC is constructing Melbourne’s $11 billion Metro Rail tunnel and Sydney’s mega $16.8 billion Westconnex
motorway (pictured).AAP

15/05/2019 Hedge funds may be behind CIMIC's $1.9b share plunge, investor claims
https://www.smh.com.au/business/companies/hedge-funds-may-be-behind-cimic-s-1-9b-share-plunge-investor-claims-20190509-p51ln7.html 2/3
Conservative investor Tom Milner’s URB Investment Company sold its 1.3 per cent stake in CIM
about six months ago “mainly on its valuation” when the share price was above the healthy $5
mark.
After an intense week of trading, the stock closed slightly higher on Thursday, up 1.36 per cen
$45.35.
Mr Milner, who is linked to one of Australia’s oldest and most respected investment firms,
Washington H. Soul Pattison, said it was likely hedge funds were shorting the stock - borrowing
the shares to sell them in expectation of price falls, then repurchasing and returning them whe
they are cheaper in order to pocket the difference.
“It’s becoming a common position of the hedge funds,” Mr Milner said. “It’s not a space in whic
we play.”
Mr Milner, the son of WH Soul Pattinson chairman Robert Milner, said other investment vehicle
associated with WH Soul Pattinson and Contact Asset Management had also sold out of CIMIC’s
stock around the same time.
“We haven’t got a position anymore,” he said.
'Aggressive' accounting accusations
The report by GMT, which claims to be a purely research-focused firm with nothing riding on th
outcome of share price movements, said CIMIC's "aggressive" accounting shared similar
characteristics to Carillion, a British construction group that collapsed with disastrous
consequences in January last year.
The research firm claims CIMIC has inflated profits by 100 per cent over the past two years
through aggressive revenue recognition, acquisition accounting and avoiding joint venture loss
in the Middle East.
“Unsurprisingly, management has been generously incentivised to maximise the share price, a
grow profits and operating cash flow. These incentives may have led to the profit inflation we h
found,” the report said.
Mr Milner downplayed those concerns, saying CIMIC was obliged to inform the market.
“If something was wrong and the numbers weren’t in line with the market they’d have to come
and update guidance,” he said.
CIMIC initially declined to comment on GMT’s accusations, but earlier this week released a
“clarification statement” confirming its compliance with disclosure obligations.
“CIMIC notes that its annual reports and full-year financial results are fully audited and in
compliance with accounting standards,” it said.
However the group’s auditors, Deloitte, were recently savaged by a parliamentary inquiry in G
Britain set up in the wake of Carillion’s collapse.

15/05/2019 Hedge funds may be behind CIMIC's $1.9b share plunge, investor claims
https://www.smh.com.au/business/companies/hedge-funds-may-be-behind-cimic-s-1-9b-share-plunge-investor-claims-20190509-p51ln7.html 3/3
MP’s investigating the cause of Carillion’s demise concluded Deloitte was responsible for advis
Carillion’s board on risk management and financial controls.
They found the advisory firm was "either unable to identify effectively to the board the risks
associated with their business practices, unwilling to do so, or too readily ignored them".
Deloitte also audit CIMIC’s parent companies, German construction group Hochtief, which has a
stake of almost 73 per cent, and Spain's Grupo ACS which in turn controls Hochtief.
Simon Johanson
Property Editor at The Age and BusinessDay journalist for Fairfax's theage.com.au, smh.co
watoday.com.au and brisbanetimes.com.au.