Rail group CF Asia Pacific has a lot riding on sale

The owners of transport company CF Asia Pacific are understood to have a lot resting on a supposedly imminent sale, with the group said to be at the mercy of its lenders.

It is believed that the company is in negotiations with the holders of its subordinated debt after being hit hard by the Australian drought, which is understood to have prompted the move by Sasser Family Holdings to put the business on offer.

Deutsche Bank has been working with CF Asia Pacific for some time.

The understanding is that a deal will be struck with a buyer within two weeks.

While reports have suggested that the company could sell for between $500m and $750m, the thinking now is that a transaction at that level would be unrealistic, given the group’s distressed state.

Based in Sydney, CF Asia Pacific provides leased trains and rolling stock assets to the Australian rail industry, along with maintenance and modification.

It also offers build and rebuild solutions for Australia’s rail operators and shippers.

The business was established in response to the privatisation of former state-based railways. It is controlled by the US-based Sasser Family which owns the Chicago Freight Car Leasing Company and has grown its transportation empire globally since 1928.

While the group is heavily exposed to the agriculture industry that transports grains, it also has a presence in the infrastructure and intermodal markets, along with the mining industry.

The most likely buyer would no doubt be an infrastructure group, given many superannuation funds, pension funds and private equity firms need to invest more heavily in infrastructure, and that part of the business is still said to be performing reasonably well.

Another buyer could be a distressed opportunity fund.

Infrastructure investors are desperate to find investment opportunities, even in what they describe as the “core plus” part of the market, as few currently exist and they are flush with cash in a low interest rate environment.

It is understood that CF Asia Pacific’s senior lenders include the Commonwealth Bank and other Australian banks that are owed about $100m, but challenges exist with its subordinated lenders, which are owed less.

For the 2018 financial year, CF Asia Pacific generated $58.9m annual revenue as it sank $29.6m into the red, with finance costs weighing on its bottom line, according to its latest accounts lodged with the Australian Securities & Investments Commission.

CF Asia Pacific’s total borrowings during fiscal 2018 were $235.66m, while net debt was $235m and total equity $114.6m.

A decision to sell the company comes after CF Asia Pacific earlier tried to sell its assets to stay afloat.