Australian construction firm Leighton Holdings Ltd said on Monday it will pay about A$870 million ($707 million) for a 45 percent stake in Dubai-based Al Habtoor Engineering as it continues to expand in the lucrative Gulf market.

Leighton, about 54 percent owned by German construction group Hochtief, said the deal with Al Habtoor, one of the Middle East's biggest engineering firms, would be accretive to earnings per share for the 2007/08 business year.

We believe there is significant upside over the medium term and we are excited about further prospects in the Gulf, Leighton Chief Financial Officer Scott Charlton said in a statement.

Shares in Leighton opened up 6 percent following the announcement. The stock was trading up 5.5 percent at A$46.25 by 0024 GMT, against a wider market up 0.5 percent.

Under the cash and debt funded deal, the company's Southeast Asia, Indian and Gulf subsidiary Leighton International will merge its operations with Al Habtoor. The combined entity will have a total of A$4.4 billion of work in hand.

Leighton, which had previously flagged a possible tie-up with Al Habtoor, has been targeting expansion in the lucrative Gulf construction market.

It is already building a A$518 million equestrian centre in Qatar and is part of the A$1 billion-plus City of Arabia project in Dubai. Leighton won its largest contract to date in the Gulf on Aug. 14 with a $550 million highway contract in Abu Dhabi, the capital of the United Arab Emirates federation.

Leighton said its Al Habtoor investment would be funded by A$350 million in cash and A$520 million in non-recourse debt, with the debt funding provided by Abu Dhabi Commercial Bank, EFIC, HSBC, Mashreqbank and the Royal Bank of Scotland.

Leighton also said on Monday that it planned to move the headquarters of Leighton International from Kuala Lumpur to Dubai as part of the increased Gulf focus.

Al Habtoor Engineering was established in Dubai in 1970 and has more than 25,000 employees. Past projects include building Dubai's sail-shaped Burj Al Arab, the world's tallest hotel.

Links between Leighton and Al Habtoor go back to 1986, when the two won a contract for Arabian Gulf University student housing construction.

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