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Commodities Drive Sale of Australian Rail Network BUSINESS ASIA By Bloomberg

Posted on: Wednesday, 15 February 2006, 12:00 CST

By Ambereen Choudhury and Vesna Poljak

The investment bank Babcock & Brown and Queensland Rail said Tuesday that they would buy Western Australia's rail network for 1.3 billion Australian dollars as transport demand rises in the nation's top commodity-producing state.

Australian Railroad Group's assets include 10,000 kilometers, or 6,215 miles, of track, mostly in Western Australia state, as well as 200 locomotives and 3,000 train cars. The business is being bought from the Perth-based Wesfarmers and the U.S.-based Genesee & Wyoming, Babcock & Brown said. The price is equivalent to $960 million

Mining companies including BHP Billiton and Alcoa are expanding in the Asia Pacific region to meet demand in China for commodities like iron and nickel ore. Almost 95 percent of the freight carried by the sparsely populated state's railroad company is related to raw material and grain exports.

"Those rail assets are being used to funnel commodities all over the place," said Michael Birch, a fund manager at Wallace Funds Management in Sydney. "With Babcock & Brown involved it tells you that they expect a fair bit of growth."

The Sydney-based bank said it might offer the business to Babcock & Brown Infrastructure Group, which owns one of the nation's largest coal-export terminals, or sell the assets to investors. It paid 853.5 million dollars for the tracks. The state-owned Queensland Rail, which will own Australian Railroad's rolling stock, paid 446.5 million dollars.

Babcock & Brown manages more than 10,000 freight rail cars in North America through its rail management business, according to its Web site. In Europe, it advises on corporate acquisitions and provides fleet management services to passenger and locomotive operators.

Queensland Rail's chief executive, Bob Scheuber, said the acquisition was "a critical step" in the company's national freight strategy. "It helps ensure we can meet the needs of customers throughout Australia," he said.

Australian Railroad's main customers include Portman, BHP, Alcoa, Iluka Resources and AWB, the nation's monopoly wheat exporter. Australian Railroad operates mainly in Western Australia and South Australia, with smaller operations in the Northern Territory and New South Wales.

The Western Australia business provides 40,000 train services, transports about 60,000 containers and moves about 1.5 million tons of freight a year. Its main freight commodities include grain, alumina, iron ore, bauxite, mineral sands and woodchips.

"This acquisition positions us well to participate in new opportunities in the sector," Babcock & Brown said. "Rail infrastructure and equipment are asset classes that require increasing levels of private sector participation."

The firm generates income by buying infrastructure assets for funds it manages from 18 offices across the United States, Australia, Europe, Asia and Africa.

Wesfarmers said it would book a pretax profit of 235 million dollars from the sale. Genesee & Wyoming said it expected to record an after-tax gain of about $107 million, excluding transaction fees and costs. As part of the transaction, Genesee & Wyoming will buy most of Australia Southern Railroad in South Australia, which provides rail freight services in the state for the transport of bulk commodities.

Source: International Herald Tribune

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