Infratil starts strategic review of NZ Bus

The potential sale comes after the public transport operator negotiated new contracts with Auckland and Wellington worth a combined $954m.

New Zealand-listed infrastructure fund Infratil launched a strategic review of its investment in NZ Bus, the country’s largest public transport operator.

Infratil invested in the business in 2005 and owns a 100 percent stake. It will now engage with market participants over the coming months to consider proposals which may include an outright sale, a merger or other options.

The process is expected to be concluded within six months.

NZ Bus runs a fleet of more than 1,000 buses, servicing the Auckland and Wellington regions. The business concluded negotiations over new contracts for Auckland and Wellington in October last year and this January respectively.

The Auckland contracts have an average term of nine years and a total contract value of around NZ$1 billion ($721.5 million; €588 million), while the Wellington contracts come with an average term of 10.8 years and total contract value of around NZ$323 million.

In the fund’s latest market update, released on 5 February, it said NZ Bus is expected to reduce in size to about two-thirds of its former scale, with its fleet declining to about 650 buses and employees falling to 1,300 from 2,000, as the new contract negotiations concluded.

“From this base, growth is anticipated,” said Infratil. It noted Auckland’s population is growing at 2 percent per year and bus use at twice that rate, while Wellington’s population and bus use are both rising at about 1 percent per year.

Infratil, managed by HRL Morrison & Co, is listed on New Zealand Stock Exchange and 49 percent backed by domestic retail investors. New Zealand institutions and offshore investors each owned a 22 percent share of the fund, as of 31 March 2017. Management and others owned the remaining 7 percent.