Ann: ACCC consults on Aurizon proposed One Rail acquisition, page-12

Bridget Carter in 'The Australian' writes on 13 June 2022:

Swiss trading powerhouse Glencore is understood to have walked away from plans to buy One Rail Coal from Aurizon, but some believe private equity could now be around the situation.

Aurizon has had its East Coast Rail division – also known as One Rail Coal – up for sale after buying One Rail Australia from Macquarie Asset Management for $2.35bn in October.

Aurizon has been working with investment bank Goldman Sachs to find a buyer, and if a deal cannot be reached it may resort to spinning off the unit. Glencore, the unit’s main customer, is understood to have taken a look but walked away.

For 2021, the unit generated $227m of revenue and $137m of underlying earnings before interest, tax, depreciation and amortisation, and the thinking is that it could be worth about $1bn. But few buyers exist for coal assets, with lenders and institutional investors shying away from fossil fuel-related businesses due to their impact on the environment.

The unit hauled close to 50 million tonnes during 2021, the most in a decade.

The coal price is currently booming, and one theory is that a private equity firm may look to buy the unit along with logistics business Qube.

It would use the lucrative earnings stream from the coal unit to pay for Qube and investment in the $6bn Australian listed business.

One thought is that the private equity firms, The Carlyle Group and Varde Partners, which own mining services provider Bis Industries, would be a good owner, being a good fit with Bis. However, the firms are understood to be facing challenges refinancing Bis.

The owners have been looking for about $600m ahead of a refinancing deadline by October, but they are not getting a strong reception from lenders.

One possibility is that another special situations fund offers the financing, or a group not adverse to investing in coal, such as Elliott Management.

However, this would no doubt come at a higher price.

Aurizon looked at Qube about a year ago. Its plan was to use cash flow from its coal operations to fund the deal and reduce its overall proportion of income from coal as the coal operations were wound down over time.

Brookfield is a shareholder in the container terminals operator Patrick with Qube, but the understanding is that Brookfield is more a seller of the business than the buyer, with the fund that owns that investment soon coming to the end of its life.

Approval from the Australian Competition & Consumer Commission for Aurizon’s One Rail Australia acquisition is due on July 14.

Analysts at Macquarie said in a research note last week that the ACCC review did not flag anything new, and the issues of concern in coal were resolvable by a hold-separate approach.

Aurizon is the largest supplier of coal haulage in Queensland and the second-largest in NSW, whereas OneRail is the third-largest in NSW and a recently entered third competitor in Queensland.