Babcock Infrastructure Mulls Selling Coal Port Stake

By Angela Macdonald-Smith

Nov. 19 (Bloomberg) -- Babcock & Brown Infrastructure Group, owner of Australia's second-biggest coal-export harbor, said it's examining the potential sale of as much as 49 percent of the port after drawing interest from potential bidders.

The company, which is already seeking partners for other port and rail assets to cut debt, will ``only look to sell down if the price is right,'' Helen Liossis, its Sydney-based investor relations manager, said today. She declined to name interested parties.

Babcock Infrastructure is understood to have issued confidential agreements to potential bidders after a group of mining companies, including Xstrata Plc, made an approach to buy the A$2.3 billion ($1.5 billion) Dalrymple Bay port, the Australian Financial Review said today. The port is used by miners including Anglo American Plc and Rio Tinto Group.

``It's their best asset by a long shot and to sell it would be unfortunate because it has got quite a lot of growth,'' said Paul Johnston, a utilities analyst at Commonwealth Securities ltd. in Melbourne. ``On the flip side, it probably would be the easiest asset to sell. There would be a lot of interest in it from coal miners to infrastructure owners.''

Xstrata, the world's biggest exporter of power-station coal, can't comment, said James Rickards, a Brisbane-based spokesman.

`Crown Jewels'

Babcock Infrastructure, which has slumped 96 percent in Sydney trading in the past six months, dropped as much as 9.4 percent today to 4.8 cents on the Australian stock exchange at 1:19 p.m. local time. The decline compared with a slide of as much as 2.4 percent in the exchange's benchmark index.

Dalrymple Bay counts among the ``crown jewels'' of Babcock Infrastructure's portfolio and any offers would need to be at an ``absolute screaming ripper of a price'' before it would be sold, Chief Executive Officer Jeff Kendrew said in August. Capacity at the port in Queensland state, which mostly exports coal used in steelmaking produced in the Bowen Basin, is being expanded to 85 million metric tons a year with a A$1.3 billion investment.

``There are many users out there that would love to get their hands on the asset,'' Liossis said by telephone. ``Where we know there is strong interest it is appropriate that we test out that appetite and the pricing for co-investing.''

The process may take three to four months and will probably attract interest from ``financial players'' as well as users of the port, she said.

`More Difficult'

Babcock Infrastructure, which is managed by Babcock & Brown Ltd., said earlier this year it would seek to sell stakes in some of its principal assets to cut borrowing and provide funds for investment. Earlier this month it announced the sale of its Powerco Ltd. unit and said it expected an outcome in talks for the sale of interests in its European ports business and the WestNet Rail business in Western Australia by Christmas.

Those sales are ``likely to prove more difficult than the Powerco sale in our view given they are exposed to cyclical shipping and transport volumes,'' Credit Suisse Group said in a Nov. 5 report.

The coal terminal accounts for about 16 percent of Babcock Infrastructure's discounted cash flow valuation, or about A$741 million, excluding debt, UBS AG said in a Nov. 5 report. ABN Amro valued the asset at A$657.5 million in a separate Nov. 5 report.

The decline in coal prices over the past months may make it more difficult for Babcock Infrastructure to get the price it wants for Dalrymple Bay, Commonwealth Securities' Johnston said.

``It is hard to see how they would be able to get a price for this that they would be comfortable with, just because of what's happened with coal prices and uncertainty as to what may happen to long-term coal demand,'' Johnston said. That may limit the value bidders will place on the growth potential of the port, he said.

Babcock Infrastructure will probably release more information on the sale process once it has reached the stage of short-listing companies to examine the accounts of the port company, Liossis said.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net