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Reported cost overruns on Melbourne's Metro Rail tunnelling project could cost Lendlease about $90 million in pretax income and prompt any potential purchaser of the company's troubled engineering arm to demand greater indemnities, Macquarie analysts say.
The investment bank's research note on the possible impact on Lendlease comes a day after the Herald Sun reported Flagstaff Partners had been called in to mediate a $200 million to $300 million cost overrun claim - out of a possible total cost blowout of $3 billion - by the Lendlease-led Cross Yarra Partnership with client the Victorian government.
Hole in the ground: Part of the Melbourne Metro rail tunnel under West Melbourne. Justin McManus
"If the $300m of speculated overruns is for the CYP in isolation and a provision of a similar size is raised, the impact to Lendlease would be about $90 million of losses," analyst Stuart McLean wrote.
"Post tax this is $60 million, or 11¢ per share. From an earnings perspective, this would be an 8 per cent headwind to earnings to share. With gearing at 9.9 per cent, we do not believe this would not create a significant strain on the LLC balance sheet."
This article first appeared on www.afr.com
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