Float on the cards for Brookfield’s Dalrymple Bay Coal Terminal

Dalrymple Bay Coal Terminal coal stock yard and Loading Jetty. Picture: Daryl Wright

Plans for a float of Brookfield’s Dalrymple Bay Coal Terminal are gathering steam, with research analysts scheduled to be briefed on the $2bn-plus asset by the private equity firm and its advisers in the coming weeks.

The hope is to embark on an IPO by the end of the year after the sales campaign for the terminal was rebooted in July with an investor non-deal road show after earlier being suspended due to the COVID-19 pandemic.

Brookfield has hired advisers including Bank of America, HSBC, Citi and Credit Suisse to get the transaction away.

A number of other brokers have also been added to the ticket in what many expect is an effort to gain traction with retail investors.

These include Wilsons, Ord Minnett, Bell Potter and Morgans.

It is understood that the four brokers have each been tasked with selling down about $100m worth of shares in the terminal, capitalising on their strong retail networks.

So far, the early indications are that Brookfield is angling for an IPO worth about $700m.

The DBCT is one of Queensland’s major metallurgical coal export facilities that handles about 20 per cent of the world’s seaborne metallurgical coal trade and will be sold with take or pay contracts in place.

On the face of it, it appears a tough sell given that banks and institutional investors are shying away from exposure to coal due to environmental concerns, and 20 per cent of the coal exported from the terminal is of the less popular thermal variety.

But the plan is to offer a yield of about 7 per cent (the earlier hope had been for a yield closer to the 6 per cent mark) which is expected to prove popular with retail investors.

This is at a time that Australian listed corporates suspend dividends amid the COVID-19 pandemic and interest rates remain low.

The DBCT IPO plans were revealed by DataRoom in December last year after Brookfield launched a sales process to offload the asset.

New York-based Global Infrastructure Partners fronting a fund of which the National Pension Service Fund out of South Korea was a major investor was taking a look, as was Cheung Kong Infrastructure, advised by Morgan Stanley.

Groups from mainland China also had a strong interest, but have walked away on the anticipation that a bid will be blocked by the Foreign Investment Review Board.

SBrookfield gained control of the terminal during the financial crisis in 2009 when it embarked on a $1.8bn recapitalisation of Babcock and Brown Infrastructure, which essentially comprised the DBCT.

The operations are outsourced to a company owned by the terminal’s mining customers, which means that all operating costs are a direct pass-through with no cost for the terminal owners, making the asset more akin to a regulated utility with a low operating risk profile.