Brookfield Asset Management plans to launch an initial public offering (IPO) for its US$1.4-billion Australian coal export terminal next week, three sources told Reuters.
The IPO will compete for the title of Australia’s biggest float in 2020 with Macquarie Group’s potential listing of Nuix in a deal that would value the software provider at close to US$1.5-billion.
Brookfield had put its plans for a sale or listing of the Dalrymple Bay Coal Terminal (DBCT) on hold in March amid coronavirus travel restrictions, but talks resumed with investors in July, two of the sources said.
Recent positive equity market conditions swayed the decision in favor of an IPO, one source said. Investment banks managing the deal are scheduled to publish pre-IPO research on Oct. 19, with a plan to list before year-end, the source added.
DBCT will meet with Australian and offshore investors next week, all three sources said, on condition of anonymity because they were not authorized to speak publicly. Brookfield declined to comment, while DBCT did not reply to a request for comment.
The IPO plans come in the wake of reports that China has put a freeze on accepting Australian coal imports amid rising trade tensions between the countries.
But an infrastructure asset like DBCT with contracted cash flows could still be an attractive investment in the current near-zero interest rates, fund managers told Reuters, despite an increasing focus on environmental, social and governance principles that threaten to dampen appetite for a coal play.
Coal is the dirtiest fossil fuel.
“Some investors have issues with coal-related stocks but we would be interested in good infrastructure assets if they are well structured and underpinned by long-term assets and long-term contracts generating long-term income streams,” said one of the sources, a Sydney-based fund manager.
LOW RISK, HIGH YIELD
Investors were pitched DBCT as a “low-risk” regulated utility with a “high stable yield,” one of the sources said, without specifying the dividend on offer.
With an export capacity of 85 million tonnes per annum, DBCT services coal mines in Queensland’s Bowen Basin, where it has take-or-pay contracts under which consumers are obliged to pay whether they take physical delivery or not.
Approximately 80 per cent of DBCT’s exports are metallurgical coal, used to make steel, its website says. It also handles thermal coal, which is used in power generation.
DBCT volumes in the three months to September fell 5 per cent from the previous quarter at 12.8 million tonnes and were down 20 per cent year on year, according to the Queensland Port Authority.
But the longer-term outlook for the terminal is not as grim.
“Queensland met coal is very high quality and highly sought after,” UBS mining and metals analyst Glyn Lawcock said.
“There is no better way to make steel,” Lawcock added. UBS is not involved in the terminal’s IPO.
DBCT recently raised about US$550 million via a BBB-rated bond issue in the United States to repay debt due next year, Refinitiv’s IFR reported.
A separate offer to sell bonds to Australian investors at up to 3.5 per cent over benchmark rates was scrapped.
DBCT has a net debt to regulated asset base ratio of 79 per cent, according to Fitch.
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