Aurizon says it expects to make a call on the disposal of its East Coast Rail business by November

The rail hauler expects to make a call on the disposal of its East Coast Rail business within weeks, which could fetch as much as $1bn.

Aurizon expects to make a call on the disposal of its coal haulage business East Coast Rail, which may fetch as much as $1bn, in November, with the company still considering the sale or demerger of the business.

The group needs to sell the operations as part of its agreement with the Australian Competition and Consumer Commission to allow its $2.4bn acquisition of One Rail from Macquarie Asset Management.

In August, Aurizon said it had been talking to up to 10 potential buyers of the haulage business, which is being run separately from the rest of its east coast haulage operations, and expected to receive indicative bids from them in September.

Aurizon chairman Tim Poole told the company’s annual shareholder meeting in Townsville on Thursday that ECR had recently finished refinancing its debt facilities as part of its preparation for separation from Aurizon, and expected to beat its $227m revenue for the 2021 financial year in the current fiscal period.

“ECR generates strong free cash flow, with EBITDA margins higher than peers and revenue underpinned by long-term take or pay contracts for most of its volumes,” he told Aurizon shareholders.

“We are working hard on a dual track process for the divestment of East Coast Rail, through either a trade sale or a demerger, whichever delivers the best outcome for Aurizon. We are well advanced in this process, and we expect to decide and announce the preferred pathway during November.”

Macquarie analysts put a $850m value on a trade sale of ECR in a client note this week, saying they had lowered their previous expectations by $50m as interest rates rise.

“The least attractive option, in our opinion, remains an in-specie distribution which takes balance sheet capacity away from Aurizon,” the Macquarie note said.

Coal loading onto an Aurizon train near Blackwater in Central Queensland. Picture: Rae Wilson

Aurizon managing director Andrew Harding told shareholders the company still expected to hit its earnings guidance of $1.47bn to $1.55bn for the current financial year, despite the wet weather afflicting its operations in Queensland and NSW.

Macquarie noted that available information on exports through Australian ports suggested that Aurizon’s haulage operations had taken a hit in the September quarter, saying falling volumes could put the company under pressure to hit its earnings guidance.

“July was always a tough period with wet weather, however the issues have continued through the quarter. We anticipate NSW volumes will be about 152 – 157 million tonnes, similar to FY21 and down on FY22,” the Macquarie note said.

“Queensland is also likely to be soft with the key corridor of Gladstone down 19 per cent. Outcome is the limited volume recovery, repricing of coal contracts will increase the earnings pressure, with risk Aurizon EBITDA guidance slips.”

Aurizon shares rose 0.9 per cent to $3.53 on the ASX, giving it a market value of around $6.50bn.