Life will not be the same again for ports and transport group, Asciano.
This week’s opportunistic grab from TPG and a partner for control at a lowball $4.40 a share was a big signal that the company’s future would be changed.
The shares rose 4 cents yesterday to $5.08 in the stronger market, so there was a smidge of encouragement for the company.
Yesterday it confirmed that by joining the mea culpa club of leveraged infrastructure and property groups by changing its distribution policy and cutting its 2009 estimate by around 50% as a result.
Asciano reported a larger-than-expected annual net loss of $182.1 million for the June 30 year
The group said core earnings for Australia’s biggest port and rail operator were in line with its own forecasts with earnings, tax, depreciation and amortisation (EBITDA) of $652.9 million.
Asciano, which was spun out of Toll Holdings last year, had forecast EBITDA of $650-$660 million.
A private equity consortium consisting of TPG Capital and Global Infrastructure Partners made an unsolicited bid at $4.40 per share for Asciano on Monday, which Asciano said ‘go away’ because the offer undervalued its business.
The offer valued the company at $2.9 billion for the equity, but a massive $7.4 billion including all that nasty debt, which forced the change of distribution policy.
No longer will it borrow to make distributions. The credit crunch has made certain of that, just as it has forced the likes of Babcock and Brown and some of the Macquarie Bank funds, Mirvac, Valad, APN, and a host of other funds to change.
The new policy will see Asciano fund its annual distributions from free cash flow. (how novel)
For the 2009 year, Asciano anticipates its total distribution under the revised policy will be in the range of 24 to 30 cents per stapled security.
Asciano on Wednesday said its final distribution for fiscal 2008 was 23 cents, which with the 23 cent interim made a total of 46 cents for the year.
So at worst the 2009 distribution it will be almost down 50%. Ouch!
TPG and its partner got no joy from the briefings given to the market yesterday with CEO, Mark Rowsthorn making it clear the offer falls short of where the board sees the company’s value.
Asciano though expressed confidence for the year ahead.
To bolster its case, the company announced new long-term deals for its Pacific National rail business- coal contracts in Queensland with Rio Tinto and Xstrata, and a five-year grain agreement with the privately-owned agri-group and grower, Manildra in NSW.
To help fund expansion, Asciano also launched a $100 million security purchase plan for existing security holders, who will be able to buy up to $5000 in new Asciano securities at a 5% discount.
The company, which was spun out of Toll Holdings in June last year, said its attributable net profit for the 12 months from June 15 2007 to June 30 2009 was $197.49 million and after significant items, it reported a net loss of $182.07 million.
The 10 year contracts with Rio Tinto Coal Australia and Xstrata Coal to haul coal exports by rail in Queensland from early 2010 cover an initial 14 million tonnes and more a year.
"The contracts Asciano has entered into are unique and set a new benchmark for rail freight services in Australia," Mr Rowsthorn said.
He said the group will also invest an initial $380 million in new rolling stock and infrastructure to service the contracted volumes.
"Asciano will invest a further $200 million to provide additional capacity for future growth," he added.
The additional capacity will be used to secure additional volumes with other coal companies, accommodate growing volumes from existing customers and to service regional markets in Queensland.
During fiscal 2008, Asciano’s Patrick container ports business achieved growth in container lifts of 9.4%, with a strong performance from all four of the terminals.
The volume growth, combined with ongoing efficiency gains, underpinned EBITDA growth of 14.5% and Pacific National achieved an increase in EBITDA of 22.8%.
