Aurizon to buy One Rail Australia for $1.75 billion to cut coal exposure

Industry:    2021-10-22

Aurizon Holdings Ltd said on Friday it would buy One Rail Australia (ORA) for $1.75 billion as it looks to diversify from coal and add bulk capacity, though the outlay and worries about the impact on earnings sent shares 7% lower.

Aurizon, Australia’s largest rail freight operator, said the deal would give it greater exposure to commodities, supporting its transition to greener energy.

More than a third of Aurizon’s core earnings came from coal in fiscal 2021 and it transports more than 200 million tonnes of metallurgical and thermal coal a year, according to its website.

“The One Rail acquisition delivers a step change for Aurizon Bulk as a new entrant in the South Australia and Northern Territory region, and supports the ongoing growth of non-coal revenue in the Aurizon portfolio,” Chief Executive Officer Andrew Harding said.

Aurizon plans to either sell or spin-off ORA’s New South Wales and Queensland business after it shells out A$2.35 billion ($1.75 billion) for ORA from Macquarie’s asset management arm and Dutch pension fund manager PGGM.

Both Macquarie Asset Management and PGGM didn’t immediately respond to a request for comment.

RBC Capital Markets said the market would take the guidance that dividend payouts would be at the lower end of the 70%-100% ratio as a negative, given that Aurizon is relying on existing and new debt to fund the deal.

The brokerage also questioned the diversification benefits, given that non-coal exposure will only rise to 14% from 9%.

Aurizon shares were down 4.5% at A$3.715 by 0150 GMT after dropping 6.9%, its biggest intraday drop since June 2020.

Queensland-based Aurizon said its bulk business would account for around 40% of its haulage revenue after the deal and the divestment, taking share off coal.

The purchase of ORA, which is expected to report A$220 million of core earnings in 2021, will complete by April.

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