What a line the Queensland public is being sold. Taxpayers look like picking up the tab for a significant part of the Dalrymple Bay Coal Terminal when it is listed on the ASX. Yet much of the terminal’s value relies on a favourable ruling from another branch of the Queensland government – the competition regulator. Michael West reports.
“You only get one Alan Bond in your lifetime, and I’ve had mine,” Kerry Packer once famously proclaimed, after selling his Nine Network to Bondy for $1 billion and buying it back three years later for $250 million.
Now the cagey Canadian asset shufflers from Brookfield Asset Management have found their Alan Bond; the Government of Queensland. Invoking the bizarre investment theory “sell low, buy high”, rather than the more traditional approach of attempting to make a profit, Queensland has sallied forth to spray the wealth of the people of Queensland into a coal port whose days are numbered.
Queensland privatised the Dalrymple Bay coal terminal near Hay in Queensland in the 1990s. Brookfield ripped out billions of dollars in profits to its Atlantic Ocean tax haven associates, and now that Brookfield is desperate to sell, Queensland’s envoys have valiantly ridden to the rescue – quixotic, chins in the air – by offering to take a cornerstone stake in their float. Saving the day for the predatory foreign financiers.
Brookfield had already tried to flog its port lease to professional buyers; first trade buyers then institutions. Alas, to no avail. So they spruced it up for mums and dads, in the hope that retail buyers could be lured to acquire a dying asset.
The sellers are pushing the argument that while the value of thermal coal is going to zero, most of Dalrymple’s exports are coking coal. However, coking coal is now expected to fall to renewables earlier than thought, with forecasts for the commercialisation of green hydrogen (to replace coking coal in steelmaking) quickly coming forward. The lads from Brookfield know this well; they are among the most canny renewable energy investors in the world.
The timing of the corporate rescue by the Queensland Investment Corporation is even more poignant given China has just hinted strongly that it no longer wants to buy Australian coal. Besides, China has just declared it would move to zero carbon emissions by 2060. This comes hard on the heels of Japan and Korea – both hitherto huge Aussie coal importers – who have both recently declared they are going net zero by 2050.
Incidentally, the federal Coalition government has no plans for a net zero policy, preferring instead to become the laughing stock globally on climate change policy.
Despite public statements regarding cornerstone positions, Brookfield has not yet lodged a prospectus with the Australian Stock Exchange (ASX). The public position of both the Australian Financial Review, which is backing the sale, and the QIC’s public position raises questions. Does the float comply with Australian securities laws? Should the QIC, a branch of the Queensland government, be taking a position in an asset on which the Queensland government’s competition authority will soon have to make a very important regulatory decision, one that will have an immediate bearing on the company’s profits?
The Financial Review says Brookfield hopes to raise $650 million. Considering that Brookfield hoped to raise $1-1.5 billion just weeks ago, the deal has clearly been downsized. Veritably, chopped in half. This isn’t surprising given the lukewarm reception to the float from both private investors and public institutions.
The article further noted that the total enterprise value was expected to be $3.1 billion with a market cap of $1.3 billion, implying debt of approximately $1.8 billion. But at the end of last year, Dalrymple Bay Coal Terminal had $2.4 billion of debt. What has happened to the additional $600 million of debt? How much of the debt will be paid down from the float’s proceeds?
We should be able to work this out shortly when the prospectus finally lobs at the ASX. Meanwhile, the horde of brokers to the issue must be scrambling to nail down retail buyers with “non-binding commitments” in the pre-IPO book-build.
Dalrymple Bay also had a $672 million related-party loan due from BPIH, one of Australia’s premier tax avoiders and a flagship Brookfield company higher up the corporate tree from the coal port. Presumably, this needs to be paid off prior to float.
Approximately $1.3 billion needs to be accounted for before investors can even begin to evaluate Dalrymple Bay Coal Terminal as an investment. Although Brookfield has taken orders for the stock, it has not made any public financial disclosures.
Given Brookfield’s size and experience in financial markets, we can conclude that the failure to file a prospectus is intentional. If so, what doesn’t Brookfield want the public to see?
The Australian Stock Exchange told Michael West Media that the float was not yet under the ASX’s supervisory authority precisely because there was no prospectus.
Then there is the conflict of interest with the state of Queensland. It is astounding that the QIC would take a public position in an IPO of an asset with a significant regulatory issue pending with the Queensland Competition Authority. As we previously noted, a key assumption underlying the promised yield of Dalrymple Bay is that it will receive the regulatory dispensation to move from a price-fixed model to a ‘negotiate and arbitrate’ model.
To summarise the conflicted mess: in June this year, the Queensland Treasurer declared Dalrymple Bay a monopoly for another 10 years after Brookfield applied for ‘light touch’ regulation. Two months later, in August 2020, the QCA released a draft report that Brookfield interprets as encouraging for its hopes to move to a new pricing model. The ability of the coal terminal to meet its financial and dividend projections is predicated on a favourable ruling. The QCA is set to rule in February 2021. How will the QCA make an impartial decision that is best for the market, and the terminal’s owners and users, when a sister branch of government is making a very public bet that it will get a favourable ruling?
We knew the float of the coal terminal would be a problem when we first wrote about it in September, but we did not foresee how twisted it would become. The absence of the ASX in the matter, the vocal support of the Queensland Investment Corporation, with the QCA sitting between a rock and a hard place, makes for terrible optics. From the outside, it looks like the Queensland government is doing what it can to allow a large corporation to monetise Australian assets.