Drought-pressured GrainCorp is to sell its eight Australian bulk liquid terminal sites to ANZ Terminals for about $350 million.
However, it has opted to keep its five New Zealand bulk liquid terminal operations, although will be independently reviewing options for this business as part of an ongoing portfolio review.
GrainCorp also has a bulk oil terminal in China which is also excluded from the sale.
The NZ bulk storage sites - two on the South Island and three in the north - have a more integrated role in its stockfeed and edible oil supply chain than the Australian terminals which have a diverse customer base, much of which is unrelated to GrainCorp’s farm and food sector businesses.
Market observers see the sale as likely to put pressure on GrainCorp’s takeover suitor Long-Term Asset Partners (LTAP) to make its long-awaited move.
But the sale may also erode valuable revenue for the company at a time when drought continues to gnaw at its Australian businesses.
It will release capital and unlock significant value for our shareholders- Mark Palmquist, GrainCorp
Last November LTAP proposed a $2.4 billion acquisition, but has not since explained how its own financial structure will accommodate the deal.
LTAP faces a fully debt-funded cost of at least $3.2b to complete the bid, but is yet to launch a definitive bid.
GrainCorp managing director, Mark Palmquist, said the bulk terminal sale had been decided as part of GrainCorp’s continuing portfolio review aimed at extracting better value from the company's extensive asset portfolio.
It would release capital for the company to work with and "unlock significant value for our shareholders".
The Australian Bulk Liquid Terminals business originally came into GrainCorp's hands with its 2012 acquisition of Gardner Smith's oilseed processing and storage business.
What's been sold
It has since expanded to include about 211,000 cubic metres of combined storage capacity around Australia.
The massive storage tanks handle bulk liquid fats, tallow and oils, fuels and chemicals for a range of customers, including GrainCorp Oils.
Terminal sites are at Port Kembla in NSW; Pinkenba and Hamilton in Brisbane; Largs Bay, South Australia; Devonport, Tasmania; Port Melbourne and Laverton in Melbourne and North Fremantle in Western Australia.
Divesting the assets to another experienced operator allows us ongoing and secure access to the storage needed to support our oils business- Mark Palmquist
As part of the sale deal with ANZ Terminals, GrainCorp will enter into a long-term storage agreement for its own canola oil storage needs.
Mr Palmquist said bulk liquid terminals business mix had evolved substantially since GrainCorp bought the assets and was increasingly serving other sectors, in addition to the edible oils commodities closely aligned with GrainCorp’s core business.
“Divesting the assets to another experienced operator, while also putting in place a long-term storage agreement, allows us ongoing and secure access to the storage needed to support our oils business," he said.
More `initiatives' coming
Mr Palmquist said the sale highlighted the value within the company’s portfolio.
Shareholders would be kept informed as appropriate as further portfolio review initiatives were progressed.
Agribusiness market analyst with stockbroker Morgans, Belinda Moore, said the bulk terminal business sale “doesn't come as a surprise”, but could mean the loss of important revenue.
“The liquid terminals were seen as non-core to GrainCorp and required significant capex to keep up with customer demand,” she said.
“However, given they generate stable earnings (take-or-pay type contracts) and GrainCorp faces a challenging 2018-19 year and potentially in 2019-20, too, we question the timing of this transaction given it doesn't need to lose these earnings at this point in the cycle.”
She estimated GrainCorp could lose approximately 40pc of its oils business earnings because of the sale.
Ms Moore said given the complexity of the proposed LTAP takeover bid for GrainCorp, and the real possibility it may fall over, the share market was likely to start focusing more on GrainCorp’s drought-tested earnings, putting pressure on its share price.
GrainCorp Oils group general manager, Sam Tainsh, said the bulk terminal sale was subject to several conditions, including GrainCorp not entering into a change of control transaction or material alternative transaction before May 10 - a reference to the possible LTAP takeover, or other interest from potential suitors.
ANZ Terminals was an established and respected bulk liquid terminals operator, with 12 sites and 426,000 cubic metres of storage capacity.
“We will work with ANZ to ensure a smooth transition for our customers and our people and through the long-term storage agreement we will have the access required for our trading and liquid feeds businesses,” he said.
The bulk terminals sale also is dependent on regulatory approvals from the Foreign Investment Review Board and Australian Competition and Consumer Commission, lessors’ consents and finalisation of agreements required for the transition of the business.
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