Industry Funds Management (IFM) – the Melbourne-based, superannuation-owned fund manager – has expressed interest in bidding for the A$700 million (€488 million; $646 million) Newcastle coal port that the New South Wales government is preparing to sell, according to the firm. However, IFM will have to complete its internal due diligence before making a final bid.
The NSW government will be looking to sell a 99-year lease on the port and bidding is expected to commence around Christmas this year, according to Michael Hanna, IFM head of Australia infrastructure. The government expects that it can attract A$700 million for the port from investors, but Hanna said valuations could reach as high as A$1 billion.
“Like any major asset sale, we will look at it, but we still need to complete our internal due diligence,” Hanna told Infrastructure Investor. The due diligence process can only begin once the NSW government opens the port for inspection, which Hanna expects will take another few months.
The Port of Newcastle is a coal port that exports Australia’s coal – primarily thermal coal – internationally. Although a specialised function, the port could still be considered a “good investment” because Australia is one of the world’s top three exporters of coal.
“So far, all ports have been good investments,” Hanna said, referring specifically to IFM’s investment in the Port of Brisbane, which has “performed as expected”. Ports like Newcastle usually bring in double-digit returns, depending on the asset, he added.
Other bidders are expected to include pretty much all the major global players, Hanna added, and he expects the government of NSW will run a bidding process similar to the one held for Port Botany and Port Kembla – which IFM won in April with a consortium of Australian and international institutional investors, Infrastructure Investor reported earlier.
Unlike in other parts of the world, however, the winner for bids of Australian ports will not be expected to operate the port – instead, it will simply act as the landlord, which greatly reduces the risk and operating costs of investors like IFM, Hanna explained. The winner is remunerated through three streams of revenue: rent from the port itself, charges for the use of nearby channels, and charges for shipping companies to land their boxes in the port.
The success of the $5 billion-plus Botany-Kembla bid in August has encouraged Australian governments to lease out more ports to private partners, according to local media reports. The government of NSW hopes to have the Newcastle bid decided before the next budget comes out in June, which Hanna believes to be a reasonable time frame.