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Queensland Said to Price Rail IPO at Low End of Range

Queensland Said to Price QR National IPO Near Bottom
A QR National coal freight train in Maitland, Australia. Photographer: Ian Waldie/Bloomberg

Queensland state may sell shares of Australian coal-train operator QR National Ltd. near the bottom of an indicated price range in its initial public offering, said three people familiar with the matter.

The stock, due to start trading in Sydney on Nov. 22, will probably be sold to institutions for between A$2.55 and A$2.60 each, the people said, declining to be identified because the pricing discussions are private. The state government said Oct. 11 it would sell the shares at between A$2.50 and A$3 apiece to raise as much as A$5.05 billion ($5 billion).

Queensland is targeting A$15 billion from asset sales to replace lost revenue and regain its AAA credit rating. QR National, set to be Australia’s largest IPO since 1997, will test the appetite for new listings after Valemus Ltd. scrapped a A$1.39 billion offer in July and shares of Myer Holdings Ltd., which raised A$2.1 billion in 2009, trade below the offer price.

“It reflects the market is more cautious than it might have been,” said Sandy Grant, who manages about A$140 million at Wilson HTM Investment Group in Brisbane and bid for QR National stock. “It’s a very good asset in the long run for people who are careful enough to take a five-year view.”

Queensland Treasurer Andrew Fraser will announce the final price tomorrow at 12 p.m. Brisbane time, according to an invitation to the media conference. His office declined to comment today. Fraser has said the state will retain between 25 percent and 40 percent of QR National until at least 2012. The Australian Financial Review reported today the stock would fetch about A$2.55 each in the IPO and the government would keep a 40 percent stake.

More Expensive

If the government keeps a 40 percent stake and sells the stock at A$2.60 apiece, the IPO will raise as much as A$3.8 billion. The proceeds may be less, depending on how much stock is taken by retail investors, who get a 10-cent discount on the institutional price.

Queensland is relying on rising demand for commodities in China and India to lure investors to the IPO. Even at the bottom of the indicative range, QR National shares would be more expensive than those of Asciano Group, Australia’s biggest listed port and rail operator.

Based on the A$2.50 to A$3 per share price range, QR National would trade at 21 times to 25 times estimated earnings per share for the year ending June 2011, according to the IPO sale document. Asciano trades at 19 times estimated earnings for the 12 months ending June 2011, according to data compiled by Bloomberg.

16,000 Wagons

QR National operates 700 locomotives, 16,000 wagons and 2,300 kilometers (1,430 miles) of track across Australia, according to a share sale document. Brisbane-based QR National expects earnings to surge 75 percent in the next two years as coal shipments rise and mining companies expand projects in Western Australia state.

Earnings before interest, tax, depreciation and amortization are set to increase 42 percent to A$894 million in the 12 months ending June 2011, the company said in the IPO prospectus on Oct. 11. Earnings may rise 23 percent in the following year, the document showed.

Bank of America Corp.’s Merrill Lynch & Co. unit, Credit Suisse Group AG, Goldman Sachs & Partners Australia Pty, Royal Bank of Scotland Group Plc and UBS AG are managing the QR National offering.

Credit Rating Cut

QR National is the third of five assets the state is selling after Standard & Poor’s and Moody’s Investors Service both removed Queensland from the top credit rating in 2009.

The government last week sold the Port of Brisbane, Australia’s third-biggest container harbor, to a group led by Global Infrastructure Partners and Abu Dhabi Investment Authority for A$2.1 billion. In June, it completed the sale of a 99-year lease to forest plantations for A$603 million.

The state has sent out requests for expressions of interest in the Abbot Point coal terminal and is working to complete the sale of a toll-road company by June, Treasurer Fraser said in a Nov. 11 telephone interview.

No further sales are planned once the residual QR stake is sold, he said.

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