Aurizon in box seat for $2bn One Rail Australia buy

Sources say Aurizon is known to be working on a major deal and One Rail has been on its agenda.

Speculation is mounting that the nation’s largest freight company, Aurizon, may have negotiated itself into an exclusive position to buy the $2bn One Rail Australia business.

There is talk Aurizon could be embarking on exclusive due diligence to buy the business, formerly known as Genesee & Wyoming Australia, but the company declined to comment.

However, sources say the business is known to be working on a major deal and One Rail has been on its agenda.

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.

However, market sources say that finding a buyer to take on the part of the company that hauls thermal coal – unpopular due to high carbon emissions – is a difficult task.

One theory is that Aurizon has offered to buy the entire operation in exchange for due diligence.

It will be interesting to see the reaction from its investors if Aurizon buys the business.

Aurizon has trying to reduce the proportion of revenue it generates from activities related to coal to appease investors that consider environment, social and governance factors when investing their funds.

One Rail is understood to generate about 47 per cent of its revenue from coal, and one senior transport analyst says that if Aurizon buys the business, its overall proportion of revenue it generates from activities related to the commodity will stay the same.

By negotiating to take One Rail’s coal component from MIRA, Aurizon could gain the business at an attractive price.

Coal prices are currently soaring and cashflow from that part of the business could be used to reinvest in Aurizon’s non-coal-related operations.

It will be interesting to know the views of the Australian Competition & Consumer Commission on the transaction.

When Aurizon tried to buy Glencore’s GRail coal haulage business in 2016, the ACCC gave it an amber light. It ended up being sold for $1.1bn to Genesee and Wyoming Australia.

The business is now part of One Rail.

A bigger focus for the competition watchdog may be One Rail’s Queensland presence, where Aurizon is dominant.

Aurizon may need to drop its Queensland contracts to Glencore, which generate up to 2 per cent of its revenue, to gain approval to buy the One Rail business.

On offer are 2500km of rail tracks between South Australia and the Northern Territory, along with intermodal and bulk haulage operations.