Palisade Investment Partners' failed port deal may have silver lining

GeelongPort last year generated $60m of earnings before interest, tax, depreciation and amortisation.

It turns out Palisade Investment Partners and Spirit Super may be in the money from their decision to walk away from a deal to buy GeelongPort for $1.2bn.

The partnership called off the acquisition in recent days due to a lack of support for the transaction from the Australian Competition & Consumer Commission.

Palisade already owns 40 per cent of the Port of Portland in Victoria while Spirit Super is an investor in Flinders Port in South Australia.

Since January when the deal was agreed, interest rates have increased significantly.

DataRoom understands that the borrowings for the proposed purchase were hedged, which means the interest rate the groups would have paid on the asset would have been far lower than if a deal was reached in today’s market.

It also means lenders would have been losing out in the deal, because they would have had to borrow the money at a higher price.

Normally, a lender applies a break fee if its customer decides to pull out of a hedging agreement. But in this case, it would be in the interests of the lenders for Palisade to withdraw from the deal because it was more favourable to the infrastructure investor than the lender. It begs the question whether the lenders waived the break fee for Palisade, which may been worth $5m to $10m.

It also raises a question about GeelongPort’s future – will it find another buyer and at what price?

And will investment banks Barrenjoey and Macquarie Capital re-run an auction?

Some think with the rising cost of debt the owners may have to knock about $200m off the asking price, which is not good news for owners Brookfield and State Super.

Perhaps the answer lies with Igneo Infrastructure Partners.

Igneo, earlier called First Sentier, was the underbidder in the auction last time around and is considered to be the most likely to make another bid.

GeelongPort last year generated $60m of earnings before interest, tax, depreciation and amortisation.