UK forces Halliburton to delay flotation of defence unit KBR

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The Independent Online

An eleventh-hour intervention by the British Government has halted the $2.4bn (£1.3bn) flotation of the defence contractor KBR, a subsidiary of Halliburton, which owns Devonport dockyard.

KBR had been due to start trading on the New York Stock Exchange this morning, but the Ministry of Defence says it has not been convinced that the company will be financially stable on a standalone basis.

In a letter sent on Monday, the Government told KBR to suspend the flotation until it gives assurances about its finances, and threatened to take away its interest in DML, the company which bought Devonport, in Plymouth, in 1997.

KBR is one of the Ministry of Defence's most important contractors, and its 51 per cent stake in DML is one of its most profitable assets. UK-listed Weir Group and Balfour Beatty are the other shareholders in DML.

The British Government believes that, separated from its giant parent company, KBR may not meet the standards of financial stability that it requires of companies entrusted with managing defence assets. Devonport is the main centre for refitting the Royal Navy's nuclear submarines.

KBR's bankers revealed the Government's intervention in a regulatory filing just hours before they had been due to price the shares. They signalled last night that the delay would be only a short one, and that they intended to go ahead with the flotation tomorrow. It was not immediately clear if that would leave time to satisfy the Government's demands.

In a revised prospectus last night, KBR said: "On 13 November, the MoD asked us to withdraw this offering pending the MoD's financial analysis of KBR on a stand-alone basis. The MoD also advised us that if we proceed with this offering without satisfying the MoD, the MoD will have little option but to take steps to cause the MoD to use its power to safeguard the essential security interests of the United Kingdom with respect to the Devonport Royal Dockyard."

The Government has the right to take back management control of the dockyard from KBR, or to force the company to sell its 51 per cent stake in DML entirely.

The MoD is already reviewing the future of Devonport and the UK's other naval bases in Portsmouth and on the Clyde, with a view to finding cost savings.

In the first nine months of this year, Devonport contributed 46 per cent of KBR's operating income, one of the main attractions to investors considering taking part in the flotation. Halliburton is selling a 20 per cent stake in KBR and previously set the price range for the shares at $15-$17. That would net the parent company $418m-$473m and value KBR at up to $2.4bn.

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