The world's biggest coal-export terminal may be put up for sale in the latest privatization of state property in Australia, and a further test of global investor appetite for infrastructure assets Down Under.
Australia's New South Wales state government said Tuesday it was considering selling a 99-year lease on Newcastle Port. It hopes to fetch as much as 700 million Australian dollars (US$666 million) for the asset, which handles more than 105 million metric tons (MnT) of coal annually, mostly bound for China and Japan, a person familiar with the matter said.
An auction of Newcastle Port would add to a string of assets sales planned by Australia's most populous state as it attempts to plug a budget deficit and protect its AAA credit rating ahead of A$60 billion of proposed investments over four years in roads, schools and hospitals.
Some of the assets on offer are likely to prove more attractive to some buyers than others. Ports, for example, may generate stronger bids because they can provide stable long-term returns that appeal to pension funds.
Even though commodity prices have weakened recently amid waning demand from large developing economies such as China, Australia's port operators have locked major mining companies into contracts that guarantee they will get paid for specified volumes of coal whatever the eventual supply.
In April, the New South Wales government sold Port Botany, a container facility, and Port Kembla, an industrial site, for a combined A$5.07 billion to a group led by Australia's Industry Funds Management, which outbid two other consortia led by Canadian pension funds.
Several Australian ports have contemplated large expansions to deal with infrastructure bottlenecks that hold up shipments. Many, however, have recently put such plans on hold in light of the deteriorating market conditions.
Port Waratah Coal Services, which is the operator of Newcastle port and counts big miners Xstrata PLC and Rio Tinto PLC as shareholders, recently delayed plans to almost double the port's shipping capacity, and may scrap them altogether if prices for thermal coal, used in electricity generation, don't rebound substantially.
The New South Wales government is also seeking to sell power generators which it said may be worth A$3 billion. It expects that auction to carry through into 2014 amid concern falling electricity demand linked to higher prices and weak consumer confidence overall has diminished the appeal of those assets.
New South Wales Treasurer Mike Baird said Tuesday that A$340 million of any proceeds from the leasing of Newcastle port would be used to upgrade state infrastructure including rail services in the city of Newcastle.
“Newcastle has been asked to make many painful adjustments in recent decades, particularly as the city's proud tradition of steel making came to a close,” Mr. Baird said.
The privatization was announced as part of the state's budget for the year ending June 30, 2014. The government on Tuesday forecast a deficit that year of A$329 million, swinging to a A$829 million surplus the following year.
-Sourced
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