Aurizon may float coal assets: Macquarie analysts

Macquarie analysts suggest in a research note that should Aurizon secure a deal to buy One Rail, it may opt to float some of the One Rail assets.

Analysts at Macquarie have raised the prospect of a demerger or float of coal-related assets held by Aurizon following a potential acquisition of the $2bn One Rail Australia business.

Amid speculation that Aurizon may be in the pole position to buy the freight services provider One Rail, Macquarie analysts suggest in a research note that should a deal emerge, it may opt to float some of the One Rail assets.

One Rail generates about 47 per cent of its revenue from thermal coal haulage from the Hunter Valley in NSW.

Aurizon has earlier indicated to investors that its intention is to distance itself from coal-related activities over time.

One Rail’s owner, Macquarie Infrastructure and Real Assets, had been considering a sale of its coal operations separately, given that they have deterred other buyers from taking on the entire business.

However, the thinking among some is that Aurizon’s plan may be to buy the entire business in the hope of getting it for a lower price, given other bidders are said to be keen for the non-coal-related operations only.

Macquarie analysts say that an acquisition of One Rail could place pressure on Aurizon’s balance sheet and push it further away from having less than 20 per cent of its sales generated from thermal coal-related activity.

The analysts also say that the Australian Commerce and Consumer Commission would likely object due to NSW market concentration.

“If such a scenario were to emerge, we expect Aurizon would quarantine One Rail for a subsequent sale or float, possibly adding the Moura and Newlands haulage contracts to One Rail.”

Jefferies analyst Anthony Moulder said in a research note that the One Rail business would be a good fit with its current operations comprising coal and bulk haulage.

One Rail’s business includes haulage, intermodal and network assets in South Australia and the Northern Territory.

“We could expect One Rail to accelerate Aurizon’s growth in Bulk,” he said in his research.

Mr Moulder said that while Aurizon remains on the path to deliver stable earnings, the surge in coal prices is positive for its volume outlook.