Queensland Says Selling A$806 Million Aurizon Stake

Queensland’s state government is selling half its stake in Aurizon Holdings Ltd., Australia’s biggest transporter of coal by rail, for about A$806 million ($839 million) to pay down debt, the Treasurer said.

The state is selling 200 million shares at A$4.03 each, Treasurer Tim Nicholls said in an e-mailed statement March 16. Its holding in Aurizon will fall to 8.9 percent, or 189.2 million shares, from 18.2 percent, when the sale is completed, he said. UBS AG is offering the shares to investors, the Australian Financial Review newspaper reported.

Queensland, Australia’s most indebted state, is aiming to return its budget to surplus in 2014-15 as Premier Campbell Newman attempts to win back its AAA credit rating. The state has benefited from cutting its investment in Aurizon as the shares climbed 58 percent from their November 2010 listing, compared with a 11 percent advance on the S&P/ASX 200 Index, the benchmark equities gauge.

“Now is not a bad time to be raising funds with confidence coming back with markets having rallied,” Nader Naeimi, the Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages about $126 billion, said in a telephone interview March 16. “There might not be a better time to do it. Presumably they have a got a better use for the money somewhere else.”

The Brisbane-based company, formerly known as QR National Ltd., listed on the stock exchange in 2010 in Australia’s second-biggest initial public offering. The stock closed at A$4.04 in Sydney on March 15.

Debt Repayment

Nicholls said the deal will provide more funds to pay down debt. The government will receive a 4.1 cents per share dividend from Aurizon on the shares that have been sold, which is payable on March 27. Proceeds from the sale are anticipated to be received on March 21. Mark Hairsine, a spokesman for Aurizon, didn’t respond to a voice mail message left on his mobile phone.

“The A$806 million sale represents a gain of around A$300 million to Queensland’s bottom line since the IPO,” said Nicholls. “While the government will continue to review its residual 8.9 percent holding in Aurizon, we have no current intention to sell additional shares in the near term.”

Queensland lost its top credit rating in 2009 after the then Labor state government spent A$54 billion to fix ailing infrastructure. Liberal party leader Newman, who won power at an election last March, has cut jobs and services to curb spending that he said risked turning Queensland into an Australian version of Spain.

Economic Growth

Resource-rich Queensland depends on mining to drive growth in the state, which accounts for about one-fifth of Australia’s A$1.4 trillion economy and is the third-biggest state by population.

The northeastern state suffered flooding in January for the second time in about two years. The Reserve Bank of Australia said Feb. 8 that the inundation “is having a noticeable impact on the transport of coal to ports, but at this early stage it appears that the effect on exports will be much less than was the case in 2011.”

The government sold a stake in Aurizon worth about A$500 million in October, the Financial review reported.

Aurizon signed a pact March 11 with GVK Group, an Indian developer of a $10 billion coal mine in Australia part-owned by billionaire Gina Rinehart, to jointly develop a rail line and port in Queensland. The two parties will update the market when they execute final agreements on all terms of the proposal, according to a statement.

Sydney-based JPMorgan Chase & Co. analyst Scott Carroll upgraded Aurizon shares to overweight on March 15, citing attractive long-term earnings growth with cost savings and higher revenue from coal.

Aurizon shares have climbed 8 percent this year, compared with a 10 percent advance on the S&P/ASX 200 Index.