Aurizon insists East Coast Rail sale still on track as suitors lose interest

East Coast Rail was part of One Rail Australia, which Aurizon bought for $2.35bn this year. Picture: Bloomberg

Aurizon is set to announce a demerger of its East Coast Rail business after sources suggested that bidders for the unit had fallen away.

The official line from Aurizon is that it will update the market this month and that the process is still active.

But the market chatter is that suitors earlier in the mix, including Glencore, Oaktree Global Management, Brookfield and New Hope, have lost interest.

As reported at the end of last month by DataRoom, there were suggestions bidders were baulking at the price expectations for the Australian listed group.

Aurizon said at its annual meeting that a decision on whether to sell the business would be made in November, but that was pushed out to December.

One suggestion was that suitors did not accept the premium that Aurizon believes they should pay for East Coast Rail for non-coal growth opportunities.

East Coast Rail was part of One Rail Australia, which Aurizon bought for $2.35bn this year.

It had been marketed as having opportunities to diversify away from coal into other markets, taking on Pacific National.

The sale, through Goldman Sachs, is part of an undertaking Aurizon gave to the Australian Competition & Consumer Commission to gain approval for an acquisition.

DataRoom earlier reported a $5bn New Hope bid for East Coast Rail, as part of a consortium with Oaktree Capital Management and Canadian private equity firm Brookfield.

A private family office was understood to have also lobbed an offer.

East Coast Rail was previously owned by Glencore, which remains a customer, and its contracts stipulate that the majority-owner of the business cannot be a coal producer.

Glencore also has a veto right: if East Coast Rail is owned by a coal producer, it has the right to buy it back.

Glencore sold its GRail business to Genesee & Wyoming for $1.14bn in 2016.

That business was later sold to Macquarie and renamed One Rail Australia.

If Aurizon cannot get the right price for East Coast Rail a demerger is likely.

East Coast Rail has a steady income with 10-year regulated tariffs, servicing the needs of 40 mines. Thirty per cent of the volume hauled is thermal coal across NSW and Queensland.

It will carry about $500m of debt with a BBB- rating., including funds from the US private placement market.

For 2021, the unit generated $227m of revenue and $137m of underlying earnings and hauled close to 50 million tonnes.