Queensland Port, Rail Sale Could Impact Asciano Auction

MELBOURNE (Reuters) – Up-for-sale Australian rail and ports operator Asciano Group Ltd (AIO.AX) may find bids trimmed this week after the state of Queensland said it was going to sell almost $10 billion worth of rival assets. The state government said this week it was going to sell five assets over the next three to five years, including Queensland Rail’s coal transport business, which it estimated would fetch A$7 billion ($5.6 billion), the Port of Brisbane, estimated at A$3.5 billion, and Abbott Point Coal Terminal, worth around A$1.9 billion.

Those businesses compete with Asciano’s Pacific National rail and Patrick ports operations, which are up for sale as the company seeks to repay A$4.6 billion in bank debt.

Final bids for all or parts of Asciano are due by Friday, with the company aiming to announce a deal by the end of June.

Analysts and a source close to the Asciano sale said bidders might revise their valuations on the view that if the rival Queensland assets are privatised, that could change the outlook for Asciano’s earnings longer term.

“It’s not necessarily a bad thing, but it definitely adds to the uncertainty,” said Will Seddon, an analyst at White Funds Management, which owns shares in Asciano.

On the down side for Asciano, potential bidders for the Queensland Rail coal business could include the mining companies which use the system, including BHP Billiton (BHP.AX) (BLT.L), Rio Tinto (RIO.AX) (RIO.L), Xstrata (XTA.L) and Anglo Coal (AAL.L) (AGLJ.J).

Asciano’s growth prospects would suffer if there was any deal by miners to sew up a coal transport deal on the system.

“That could have potentially a very negative impact on Asciano,” said a source close to the bidding.

BHP and Rio declined to comment on whether they would be interested in the rail assets.

The other potential bidders are likely to include private equity groups and pension funds, the same bidders looking at Asciano’s assets.

Pension funds — which want stable, long-term returns — and private equity players such as TPG Capital [TPG.UL], The Carlyle Group and Global Infrastructure Partners, owned by Credit Suisse (CSGN.VX) and General Electric (GE.N), have all looked at Asciano.

“Potential buyers will now be able to bid with the knowledge that if they miss out on Pacific National Coal, QR Coal is coming to market soon,” said JP Morgan analyst Matthew Crowe.

Chinese companies could also be interested, as much of the growth tied to the assets would be driven by demand in China, said White Funds Management’s Seddon.

On the positive side, in the near term, analysts said the pending sale of the Queensland assets could be good for Asciano’s Pacific National, if it means that the state government is no longer going to invest in improving the business.

Credit Suisse said it expected Asciano would continue to pick up market share from Queensland Rail’s coal business.

In the long run, private ownership of the competing assets could also be good for the industry as the new owners of Queensland Rail, the Port of Brisbane and Abbott Point Terminal might be more rational operators, focused on profitable business, analysts said.

The Queensland government plans to appoint advisers for the infrastructure assets sales in the next few weeks.

Likely candidates to run the sale would include Lazard (LAZ.N), which has previously advised Queensland on privatisations, and Credit Suisse, which has advised on several privatisations on the federal and state level. ($1=1.247 Australian Dollar)

By Sonali Paul
(Editing by Lincoln Feast)