FMS 0.00% 6.4¢ flinders mines limited

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    ASIC to probe CIMIC control of Devine

    The corporate watchdog has told the Devine Group's shareholders that it will further examine the property company's books following investor claims that controlling shareholder CIMIC has been forcing it into losses.

    Doug Niven, the Australian Securities and Investments Commission's senior executive leader for financial reporting and audit, has told shareholders that the watchdog "will be looking further into the matter" and has informed the Treasury, according to emails seen by The Australian Financial Review.

    ASIC previously told shareholders its analysis of public documents had found no evidence that Devine's losses had been overstated or that the values of Devine's properties had been understated.

    Shareholders have been pushing for a deeper ASIC investigation into the property group's losses since CIMIC, which is owned by Spanish construction group ACS, increased its stake in Devine to 59 per cent in 2015. It is understood that ASIC has not launched a formal investigation at this stage.
    Change of control

    Devine shareholder Ben Pauley says ASIC needs to examine the property group's 2014 and 2015 annual reports because there was a change of control in late 2015 when CIMIC increased its stake to 59 per cent after making an unsolicited takeover offer priced at 75¢ a share. CIMIC previously held just under 50 per cent of Devine.

    "CIMIC took control of the board and it swung from an estimated $10 million-$13 million profit to a $34 million loss in four months," Mr Pauley said.

    "The 2015 annual report has been analysed by, amongst others, a shareholder who is a corporate lawyer and he found it to be completely incomprehensible with regards to explaining the losses," he said.

    "Land settlements, housing starts and apartment sales had all decreased but there was still no reason for the $44 million change in profits."

    CIMIC's 2015 annual report attributed the loss to the underperformance of Devine Constructions and "production delays within the land development business and the withdrawal of a project partner for a planned project due to uncertainty surrounding the then active takeover offer."

    Shareholders want ASIC to examine what projects were under way when CIMIC obtained control of Devine and analyse the costs of completing them. CIMIC has declined to comment.
    Cash claim

    Mr Pauley said Devine shareholders believed CIMIC was bolstering income in its core construction business with cash from the property group.

    CIMIC reported an 11 per cent rise in annual profit to $780.6 million in February. Devine reported a $25 million annual net loss.

    Devine shares, which were trading about 88¢ at the start of 2015, closed at 22¢ on Monday, down 41 per cent over the past 12 months. CIMIC's shares closed at $50.42, up 13 per cent over the period.

    Devine investors believe it is in CIMIC's interests to keep the stock price low so it eventually can make another hostile bid for the residential property group at a low price, or push it into administration and sell off its assets.

    CIMIC has been unable to convince a private Queensland company, Brazil Farming, to sell its 19.7 per cent stake.

    Devine shareholders want ASIC to investigate CIMIC and Devine's financial reporting from mid-2014, when CIMIC announced its intention to conduct a formal process to seek a buyer of Devine.

    The sale process was terminated in May 2015, when Devine's board said that although it had received some non-binding, confidential and conditional proposals and a final proposal, the conditions were not able to be satisfied.

    Devine is chaired by CIMIC director David Robinson. Mr Robinson previously spent 26 years on Leighton Holdings' board as a non-executive director, before it was acquired by Grupo ACS and renamed CIMIC in early 2014 as a representative of its largest shareholder, German construction group Hochtief.
 
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