This article from the Business Spectator suggests that coal assets are booming and port sales are in demand. AIO up over 50% froma couple of weeks ago.
Asciano’s update on its "monetisation" process contains a bittersweet message. The good news is that prospective buyers are swarming around the group’s key assets and, indeed, the head stock itself. The bad news is that to attain stability, Asciano is going to have to surrender, at the very least, one of its unique assets at perhaps the worst possible moment.
The degree of interest – Asciano says it has multiple expressions of interest and proposals from a range of financial and industry parties – suggests Asciano will be able to conduct an auction with some depth of bidding for whatever proportion of its asset base it chooses to monetise and therefore obtain value not reflected in a security price that was trading at 67 cents before its announcement ignited the stock.
Nevertheless, Asciano would never have contemplated selling some or all of its coal or ports businesses, or considered change of control transactions or recapitalisation proposals in the current climate, if it weren’t for the clock ticking quietly away in the background – the $2.25 billion of debt that matures in May next year.
The fact that it has more than a year to run before its predicament becomes acute has enabled Asciano to run a relatively leisurely process and gives it time to conduct a proper and multi-layered auction.
With economic conditions deteriorating and the markets remaining depressed and volatile, however, it doesn’t have the option of trying to defer the moment at which values are crystallised in the hope of a more benign environment.
It isn’t surprising that Asciano’s monetisation process has attracted considerable interest. Its core assets are unique and resilient. Its December half results showed that its container port business, while slightly weaker, was holding up well despite the rapidly deteriorating conditions and its coal and intermodal businesses were demonstrating very strong growth.
These are defensive assets with the resilience that comes with market power and big barriers to entry. The Asciano problem doesn’t lie in its operations or the quality of its asset base but in the way they were financed.
The depth and breadth of interest Asciano has disclosed will throw up some complicated equations for the Asciano board and its advisors.
Should they sell just one of the key assets and hope to keep the rest of the group intact? Should they try to keep the portfolio together and opt for a recapitalisation that preserves an exposure to the assets for existing shareholders? Should they look for a complete solution and a clean sale of the entire group?
Logically, given the external conditions, Asciano would seek to minimise the extent of the shrinkage in its portfolio today to maximise the potential for a recovery of value for its shareholders if and when the global financial system starts to recover.
The scale of funds it needs to gain from the process – at least $1 billion, possibly considerably more – means, however, that it is probable that Asciano, if it isn’t taken over, will emerge with a much smaller and narrower portfolio than it has today.
The board will be looking back regretfully at their decision to spurn the advances of private equity firms TPG Capital and Global Infrastructure Partners last August. The firms offered $4.40 a share, with a scrip alternative, to take Asciano private. The structure would have enabled existing shareholders to follow Asciano into an unlisted environment.
It is improbable that any of the proposals on the table today, or any that might emerge now that the process is gathering momentum, would offer that kind of value.
Having had one experience of rejecting a proposal only to see conditions deteriorate markedly and its security holders’ value decimated, however, Asciano would now appreciate that the monetisation process has to end with a big deal, no matter how unpalatable it might be to sell such valuable businesses in such a hostile environment.
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BBI Price at posting:
4.9¢ Sentiment: Buy Disclosure: Held
