Aurizon’s move to sell a stake in its formerly state-owned rail track infrastructure group is expected to attract strong interest and free up billions of dollars.
Australia’s largest rail freight company announced on Monday that it had started talks with potential investors in relation to taking a minority equity interest in Aurizon Network.
The move has been linked to Fortescue Mining’s current auction of a stake in its Pilbara rail and port assets, with Aurizon considered a buyer.
Aurizon has taken on an extra $3.6 billion of debt amid criticisms by the market that it was not using enough borrowings to grow, in contrast to Fortescue which was regarded as having too much debt.
Aurizon’s shares lifted on the news to close seven cents, or 1.6 per cent, higher at $4.34.
The company denies the sale will lead to a break-up of the business, with management of the 2670km of track in the coal-rich Queensland Galilee Basin to be a standalone subsidiary with its own debt and operating structure.
There was no guaranteed sale yet, it said.
The moves come as the regulator, the Queensland Competition Authority, reviews the access arrangements that dictate the tariffs Aurizon charges to other coal haulers on the network.
Morningstar analyst Ross MacMillan said he believed investors would be lining up to participate in a sale of the assets, estimated to be worth $6.9 billion to $7.9 billion.
He named infrastructure investors the Canadian Pension Fund and Australia’s Future Fund as possible investors.
Aurizon generates half of its earnings in the network business charging competitors to use the tracks with the rest coming from other activities such as hauling coal, iron ore and other freight.
The Queensland government privatised the business in 2011 and is expected to sell its remaining 8.9 per cent stake.
A sale in the network would not lead to a reduction in staff numbers, it said.
The new debt includes $3 billion in the network business of which $2.2 billion would be drawn down first, giving it a 55 per cent gearing.
Another $600 million in debt has been established in the rest of the group.
Ratings agencies Moody’s and Standard & Poor’s confirmed their Baa1 and BBB+ credit ratings for the company.
