Macquarie looks at options for One Rail sale

 
  bingley hall Minister for Railways

Location: Last train to Skaville
MIRA pitches break up-play for One Rail Australia, flyer out

Financial Review
Sarah Thompson, Anthony Macdonald and Tim Boyd

May 19, 2021 – 9.33pm

Macquarie has offered to split its rail freight and coal transport business One Rail Australia in a bid to overcome negative investor sentiment towards the fossil fuel and record a $2 billion-plus payday.

Macquarie’s infrastructure investment arm, MIRA, and its bankers have proposed splitting One Rail Australia into separate coal and non-coal businesses, in early discussions with potential buyers.

One Rail Australia's business includes carrying coal in the Hunter Valley region of NSW for miner Glencore.  

One Rail’s coal business would shift coal for major miner Glencore in NSW’s Hunter Valley and Queensland and be a $130 million a year business at the EBITDA line.

The non-coal business would own and operate the bulk of Australia’s rail freight line between Adelaide and Darwin, and make about $105 million a year shifting goods north and south for the likes of Toll, Linfox and Woolworths.

The non-coal business would be expected to attract widespread interest from rival transport and logistics companies, such as ASX-listed Qube Holdings and Pacific National, as well as infrastructure funds.

It’s expected to be much harder to find a mainstream buyer for the coal business - despite its long-term contracts with Glencore and profitability - given widespread investor sentiment towards the coal sector.

MIRA and its bankers, Credit Suisse and Macquarie’s own Macquarie Capital, outlined the potential split in a 10-page sale flyer sent to interested parties this week, saying the business had been readied for such a move.

The flyer pitched One Rail group as a “unique platform of critical infrastructure with a diverse growth pipeline”, and a top three player in Australia’s rail sector.

The flyer said One Rail would record $475 million revenue and $235 million EBITDA this year, owned or leased 2460km of track, had 110 locomotives, 2614 wagons and 650 employees.

It said MIRA, which owns 48 per cent of One Rail and manages the other 52 per cent on behalf of Dutch pension fund PGGM, would consider offers for the business as a whole, or separate bids for the coal and non-coal businesses.

Potential buyers were told the auction would get underway as early as July and MIRA was keen to have a deal signed by the end of the year.

The mooted sale comes five years after MIRA invested in One Rail, which was then known as Genesee & Wyoming Australia (GWA). MIRA bought a stake in GWA to help its US parent Genesee & Wyoming acquire what was Glencore’s Australian coal transport business.

Genesee & Wyoming was acquired by Brookfield in 2019, which saw its GWA stake offered to MIRA. MIRA and PGGM acquired the stake to take full control.

Street Talk revealed MIRA’s plans to test the market for One Rail in October last year. This week’s flyer sees discussions with potential investors ramp up ahead of the auction.

Sponsored advertisement

  james.au Minister for Railways

Location: Sydney, NSW
Interesting move, after not very long of being owned either.

Will be interesting to see ACCC reactions given the concerns they raised last time about Aurizon and PN buying the coal contracts/work.

If I was ARTC id try and get the track ownership of the Darwin-Adelaide rail corridor/track out of this transaction and make that section of track work like all the rest of the defined interstate.  Open access above.  Wont happen though im sure.
  Sulla1 Chief Commissioner

Interesting move, after not very long of being owned either.

Will be interesting to see ACCC reactions given the concerns they raised last time about Aurizon and PN buying the coal contracts/work.

If I was ARTC id try and get the track ownership of the Darwin-Adelaide rail corridor/track out of this transaction and make that section of track work like all the rest of the defined interstate.  Open access above.  Wont happen though im sure.
james.au

Given the Darwin line is the only interstate standard gauge line maintaining market share (albiet it's a small market), I would submit involving the ARTC and it's access and pricing regime in this corridor is just about the last thing the Australian rail industry needs. The market for this corridor is so small that the break-up of the existing operator's piece of the pie will simply diminish rail's viability just as has happened in almost every other open access low-volume corridor.

The current ownership model is working for the Darwin line, the ARTC's model has delivered 20-years of volume decline nationwide - I'm pretty sure the jury is in now on which model best suits Australia. We either need better access models, better operators or better ideas for non-bulk rail.
  james.au Minister for Railways

Location: Sydney, NSW
Interesting move, after not very long of being owned either.

Will be interesting to see ACCC reactions given the concerns they raised last time about Aurizon and PN buying the coal contracts/work.

If I was ARTC id try and get the track ownership of the Darwin-Adelaide rail corridor/track out of this transaction and make that section of track work like all the rest of the defined interstate.  Open access above.  Wont happen though im sure.

Given the Darwin line is the only interstate standard gauge line maintaining market share (albiet it's a small market), I would submit involving the ARTC and it's access and pricing regime in this corridor is just about the last thing the Australian rail industry needs. The market for this corridor is so small that the break-up of the existing operator's piece of the pie will simply diminish rail's viability just as has happened in almost every other open access low-volume corridor.

The current ownership model is working for the Darwin line, the ARTC's model has delivered 20-years of volume decline nationwide - I'm pretty sure the jury is in now on which model best suits Australia. We either need better access models, better operators or better ideas for non-bulk rail.
Sulla1
I think the ARTC's issues are exogenous more than endogenous, and the increasing productivity of road vs rail is the key issue.  HPV trucks, bigger B-doubles and political provision of higher quality road infrastructure that is not linked to cost.  The investment on the SM/MS corridor has been woeful compared to the investment in the Hume over the last 20 years.  Simlar SB/BS.

Id like to see data, but it seems that the Queensland NCL is perhaps the best analogy to the DA/AD corridor.  This almost became a private PN line (in effect) but it seems that the entry of Linfox into the corridor has increased volumes, despite predictions on these boards to the opposite).  Admittedly, there was more volume on the QNCL to transfer from road to rail, and rail market share on DA/AD is already high, however competition from say a non OneRail DM/MD train every now and then might be interesting to see.

Reading though the submissions from the other operators on the corridor, gaining access is a problem using the current arbitrate model, and (eg PN) that there are concerns about sharing confidential information when discussing access, given that ORA would then be able to use that to go and chase the business instead.  This is a form of competition in itself, and may lead to price reductions, however blind bidding by operators would lead to more pure price competition.  If ORA doesnt know what PN might bid, they might go lower on price.  Lower prices means less margin yes, but possibly more volume (as i think we are seeing on the QNCL).  This is of course theoretical but we are seeing other operators want in, but cant negotiate access.  Cross-subsidisation between below and above rail is also a concern (AZ).

See https://www.escosa.sa.gov.au/projects-and-publications/projects/rail/review-of-rail-guidelines-and-access-regimes-2017 for some light reading Smile

Regarding Tarcoola-Alice Springs, if I've got my understanding correct, that is leased by ORA from ARTC anyway until 2047.  So they'd essentially be buying out 27 years of lease, and ownership of Alice Springs-Darwin will transfer later too.
  M636C Minister for Railways

I wonder how important the Dutch Pension Fund (52% owner) was in this decision.
The Europeans in General are more environmentally aware.
The Netherlands can't be in favour of much sea level rise....

Peter
  bingley hall Minister for Railways

Location: Last train to Skaville
A headline from The Australian yesterday says

Aurizon in box seat for One Rail - The nation’s largest freight company, Aurizon, may have negotiated itself into an exclusive position to buy the $2bn One Rail Australia business.
The Australian

Anyone have access to the full story?
  bevans Site Admin

Location: Melbourne, Australia
A headline from The Australian yesterday says

Aurizon in box seat for One Rail - The nation’s largest freight company, Aurizon, may have negotiated itself into an exclusive position to buy the $2bn One Rail Australia business.

Anyone have access to the full story?
bingley hall

Can find it here https://t.co/GFStGCsWel

Why would Aurizon want this network when they have wiped out so many other areas of their business?
  Fatty Deputy Commissioner

Location: Melbourne
A headline from The Australian yesterday says

Aurizon in box seat for One Rail - The nation’s largest freight company, Aurizon, may have negotiated itself into an exclusive position to buy the $2bn One Rail Australia business.

Anyone have access to the full story?

Can find it here https://t.co/GFStGCsWel

Why would Aurizon want this network when they have wiped out so many other areas of their business?
bevans
For the coal business I assume. That's pretty much all Aurizon is interested in these days.
  bevans Site Admin

Location: Melbourne, Australia
For the coal business I assume. That's pretty much all Aurizon is interested in these days.
Fatty

But what coal business is there on the Tarcoola and Darwin line?
  bingley hall Minister for Railways

Location: Last train to Skaville
Thanks for the link bevans.

The Australian story is highly speculative and contradictory.

For example

Earlier the understanding was that One Rail’s owner, Macquarie Infrastructure and Real Assets, was looking to offload the coal-related component of the business first before looking for a buyer for the remaining operation, which is more attractive to buyers.
The Australian

That is not what was said by Macquarie earlier this year -  what they said was that all options were on the table.

To be fair to Aurizon there has been a slow move away form its reliance on coal over the last year. The successful takeover of the CBH grain contract in WA and running two grain rakes in NSW are indications of a softening stance.

Management changes since their disastrous foray into interstate intermodal a few years back, might mean they are now having second thoughts about what fits their business model?
  justapassenger Minister for Railways

For the coal business I assume. That's pretty much all Aurizon is interested in these days.

But what coal business is there on the Tarcoola and Darwin line?
bevans
None. But there’s some in the Hunter Region, which they may be able to buy from OneRail without buying OneRail as a whole.

But it would be more like Aurizon to buy the whole of OneRail and dump the non-coal parts of it in a subsequent fire sale, then wonder why well dressed shareholders are turning up to the next AGM with torches and pitchforks.
  Fatty Deputy Commissioner

Location: Melbourne
For the coal business I assume. That's pretty much all Aurizon is interested in these days.

But what coal business is there on the Tarcoola and Darwin line?
None. But there’s some in the Hunter Region, which they may be able to buy from OneRail without buying OneRail as a whole.

But it would be more like Aurizon to buy the whole of OneRail and dump the non-coal parts of it in a subsequent fire sale, then wonder why well dressed shareholders are turning up to the next AGM with torches and pitchforks.
justapassenger
Sounds like exactly the idiotic sort of thing that Aurizon management would do.
  GL26C-2 Beginner


But what coal business is there on the Tarcoola and Darwin line?None. But there’s some in the Hunter Region, which they may be able to buy from OneRail without buying OneRail as a whole.

But it would be more like Aurizon to buy the whole of OneRail and dump the non-coal parts of it in a subsequent fire sale, then wonder why well dressed shareholders are turning up to the next AGM with torches and pitchforks.
Sounds like exactly the idiotic sort of thing that Aurizon management would do.
Fatty

They are eliminating competition in the Hunter and Central Queensland Coal Networks, it is far from stupid. The shareholders wouldn't give a rats smeg about intermodal unless they are losing a fair chunk from their pockets (which intermodal was doing in Aurizons books).

A lot of people are forgetting Aurizon is focused on Bulk commodities; SA Grain, Whyalla Iron Ore, and Gypsum are up for grabs
  Fatty Deputy Commissioner

Location: Melbourne

But what coal business is there on the Tarcoola and Darwin line?None. But there’s some in the Hunter Region, which they may be able to buy from OneRail without buying OneRail as a whole.

But it would be more like Aurizon to buy the whole of OneRail and dump the non-coal parts of it in a subsequent fire sale, then wonder why well dressed shareholders are turning up to the next AGM with torches and pitchforks.Sounds like exactly the idiotic sort of thing that Aurizon management would do.

They are eliminating competition in the Hunter and Central Queensland Coal Networks, it is far from stupid. The shareholders wouldn't give a rats smeg about intermodal unless they are losing a fair chunk from their pockets (which intermodal was doing in Aurizons books).

A lot of people are forgetting Aurizon is focused on Bulk commodities; SA Grain, Whyalla Iron Ore, and Gypsum are up for grabs
GL26C-2
Buying up the whole business and having a fire sale of the bits they don't want is what I was talking about.
  Sulla1 Chief Commissioner

Aurizon has been quietly growing its Bulk Division after the horror years of the late 2010s. Last financial year revenues were up 5% and tonnages up 6% to 51.1-million tonnes, while coal was going backwards, impacting the Coal and Network Divisions.

Prior to the large CBH contract Aurizon now has, Bulk Division revenues were already at 39% of the Coal Division revenues. With CBH and maybe One Rail's non-coal business,  the Aurizon Bulk Division will be heading towards 60% of the Coal Division revenues and put Aurizon in a far stronger post-coal position.

Aurizon's Bulk Division really has been the company's success story over the last few years and acquiring the Darwin line will allow Aurizon to strengthen its base metals transport business across Northern Australia between the ports of Townsville and Darwin.

Bulk Division also handles the Linfox intermodal business in Queensland - One Rail's smaller and low cost intermodal business to Darwin would remain a good fit for the division.

Now considering One Rail's thermal coal business has a very finite future - particularly in the Hunter Valley, where Glencore will close older mines in favour of new lower cost Queensland mines - Aurizon buying One Rail needs to be seen as future proofing revenues using the sugar hit of current coal demand to pay for it.
  james.au Minister for Railways

Location: Sydney, NSW
Bulk Division also handles the Linfox intermodal business in Queensland - One Rail's smaller and low cost intermodal business to Darwin would remain a good fit for the division.
Sulla1
As would the actual network part of the business.  Though i still think ARTC would be the better owner of that given that would probably facilitate more open access given the ARTC undertaking (under commonwealth laws) works in a more open way than the SA regulation of ORA.
  bevans Site Admin

Location: Melbourne, Australia
Bulk Division also handles the Linfox intermodal business in Queensland - One Rail's smaller and low cost intermodal business to Darwin would remain a good fit for the division.
As would the actual network part of the business.  Though i still think ARTC would be the better owner of that given that would probably facilitate more open access given the ARTC undertaking (under commonwealth laws) works in a more open way than the SA regulation of ORA.
james.au

The best thing that could happen to the Tarcoola to Darwin line would be ARTC ownership and control although I believe ARTC does not like branch lines at all.
  james.au Minister for Railways

Location: Sydney, NSW
Bulk Division also handles the Linfox intermodal business in Queensland - One Rail's smaller and low cost intermodal business to Darwin would remain a good fit for the division.
As would the actual network part of the business.  Though i still think ARTC would be the better owner of that given that would probably facilitate more open access given the ARTC undertaking (under commonwealth laws) works in a more open way than the SA regulation of ORA.

The best thing that could happen to the Tarcoola to Darwin line would be ARTC ownership and control although I believe ARTC does not like branch lines at all.
bevans
Not sure that line would be a branch line, not in the traditional sense anyway.  If we think of the DIRN as the Defined intercapital rail network (an aside, I think interstate in the name is a misnomer, it doesn't connect states unless you define them as their capital regions, though even capital could be wrong given Canberra isnt connect (though Hobart doesnt count), then it would clearly be a part of the DIRN.  Darwin isnt the biggest place (about 150k population), but its still a capital!
  bevans Site Admin

Location: Melbourne, Australia
Not sure that line would be a branch line, not in the traditional sense anyway.  If we think of the DIRN as the Defined intercapital rail network (an aside, I think interstate in the name is a misnomer, it doesn't connect states unless you define them as their capital regions, though even capital could be wrong given Canberra isnt connect (though Hobart doesnt count), then it would clearly be a part of the DIRN.  Darwin isnt the biggest place (about 150k population), but its still a capital!
james.au

Doing a lot of work with Darwin at the moment.  My comment is about unblocking the development of spur lines to the main trunk between Tarcoola and Darwin, the TNG development as an example.
  emerald-a Junior Train Controller

Aurizon are buying the One Rail business and will dispose of the Hunter coal assets
  emerald-a Junior Train Controller

Should have put Hunter and Qld coal assets to be disposed  of
  bevans Site Admin

Location: Melbourne, Australia
Aurizon are buying the One Rail business and will dispose of the Hunter coal assets
emerald-a

More details https://www.railpage.com.au/news/s/aurizon-announces-agreement-for-acquisition-of-one-rail-australia
  Sulla1 Chief Commissioner

Very early days yet, but Aurizon has the capacity to quickly replace most of 1Rail's oddball narrow gauge classes in South Australia with spare 1980's-built 2170Fs and 2470s in Queensland, many of which are currently in storage.

Aurizon (although I'm not holding my breath) may also have more dollars to throw towards a better rail transport relationship with Vittera - growing its Bulk Division will certainly rely in some part on the potential for additional grain transport in South Australia.
  Sulla1 Chief Commissioner

Very early days yet, but Aurizon has the capacity to quickly replace most of 1Rail's oddball narrow gauge classes in South Australia with spare 1980's-built 2170Fs and 2470s in Queensland, many of which are currently in storage.

Aurizon (although I'm not holding my breath) may also have more dollars to throw towards a better rail transport relationship with Vittera - growing its Bulk Division will certainly rely in some part on the potential for additional grain transport in South Australia.
  bevans Site Admin

Location: Melbourne, Australia
Aurizon (although I'm not holding my breath) may also have more dollars to throw towards a better rail transport relationship with Vittera - growing its Bulk Division will certainly rely in some part on the potential for additional grain transport in South Australia.
Sulla1

It does seem that the relationship between Viterra and 1Rail is not great.

Sponsored advertisement

Display from: