Queensland Raises $4.57 Billion in QR National IPO

A QR National coal freight
A QR National coal freight train makes its way back to a coal mine after dropping off a delivery to Newcastle Coal Terminal for shipment, in Maitland, Australia. Photographer: Ian Waldie/Bloomberg

Queensland state sold shares of Australian coal-train operator QR National Ltd. at A$2.55 each, raising A$4.63 billion ($4.57 billion) for the state in the nation’s second-biggest ever initial public offering.

The state government will keep a stake of as much as 40 percent in the company, it said in an e-mailed statement today. The per-share price gives QR National an enterprise value of A$6.7 billion, the state said. The shares start trading Nov. 22.

Queensland is targeting A$15 billion from asset sales to replace lost revenue and regain its AAA credit rating. QR National 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.

“These proceeds will now be used to pay off debt and establish a stronger balance sheet,” Premier Anna Bligh said in the statement. “Now is the right time for QR National to be backed by private investment.”

Queensland’s income from the transaction comprises A$4.05 billion in IPO proceeds, an A$80 million dividend from QR National and A$500 million from a debt facility arranged by the rail operator, Treasurer Andrew Fraser said today.

Retail investors bought 34 percent of the shares and institutional investors 66 percent. Retail investors will receive a 10 cent discount, meaning they pay A$2.45 a share.

‘Relentless Campaign’

The A$2.55 price is near the bottom of an indicated range, with the state government saying Oct. 11 it would sell the shares at between A$2.50 and A$3 apiece.

The share sale had been subjected to negative “campaigns” from fund managers, coal companies and rival Asciano Group, Fraser said.

“There has been a relentless campaign here by many people who’ve got vested interests to talk this price down,” he said. Still, “what you’ve got is a transaction that’s been completed just as we said it would.”

QR National will have an A$6.22 billion market value at listing, according to the statement. Stock exchange operator ASX Ltd. is valued at A$6.57 billion, while Qantas Airways Ltd. is worth A$6.03 billion, according to Bloomberg data. The Australian government sold one third of Telstra Corp. for A$14.3 billion in 1997, in the nation’s biggest public share sale.

Brisbane-based 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.

Earnings Outlook

The company 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.

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 on Nov. 10 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 Andrew Fraser said in a Nov. 11 telephone interview.

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