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Aurizon to buy One Rail Australia for US$1.75 billion to cut coal exposure

Aurizon to buy One Rail Australia for US$1.75 billion to cut coal exposure

An Aurizon coal train travels through the countryside in Muswellbrook, north of Sydney, Australia, April 9, 2017. REUTERS/Jason Reed/Files

:Aurizon Holdings Ltd said on Friday it would buy One Rail Australia (ORA) for US$1.75 billion as it looks to diversify from coal and add bulk capacity, though the outlay and worries about the impact on earnings sent shares 7per cent lower.

Aurizon, Australia's largest rail freight operator, said the deal would give it greater exposure to commodities, supporting its transition to greener energy.

More than a third of Aurizon's core earnings came from coal in fiscal 2021 https://www.aurizon.com.au/-/media/project/aurizon/files/investors/documents-and-webcasts/2021/2021-full-year-results/2021-aurizon-annual-report.pdf and it transports more than 200 million tonnes of metallurgical and thermal coal a year, according to its website https://www.aurizon.com.au/what-we-deliver/coal.

"The One Rail acquisition delivers a step change for Aurizon Bulk as a new entrant in the South Australia and Northern Territory region, and supports the ongoing growth of non-coal revenue in the Aurizon portfolio," Chief Executive Officer Andrew Harding said.

Aurizon plans to either sell or spin off ORA's New South Wales and Queensland business after it shells out AUS$2.35 billion (US$1.75 billion) for ORA from Macquarie's asset management arm and Dutch pension fund manager PGGM.

Both Macquarie Asset Management and PGGM didn't immediately respond to a request for comment.

RBC Capital Markets said the market would take the guidance that dividend payouts would be at the lower end of the 70per cent-100per cent ratio as a negative, given that Aurizon is relying on existing and new debt to fund the deal.

The brokerage also questioned the diversification benefits, given that non-coal exposure will only rise to 14per cent from 9per cent.

Aurizon shares were down 4.5per cent at AUS$3.715 by 0150 GMT after dropping 6.9per cent, its biggest intraday drop since June 2020.

Queensland-based Aurizon said its bulk business would account for around 40per cent of its haulage revenue after the deal and the divestment, taking share off coal.

The purchase of ORA, which is expected to report AUS$220 million of core earnings in 2021, will complete by April.

(US$1 = 1.3392 Australian dollars)

(Reporting by Harish Sridharan, Nikhil Kurian Nainan and Sameer Manekar in Bengaluru; Editing by Aditya Soni)

Source: Reuters

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