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Transport bankers and analysts have a chance to dream big.
With the country's largest integrated port and rail operator Asciano in play and the government taking pitches on its piece of the country's rail infrastructure network, a few watchers are asking whether a bigger roll-up play may be in the works.
Sure, there are a lot of hurdles to be cleared. Brookfield, believed to be flanked by financier Citi, is only 10 days into due diligence at the complex Asciano and wheels turn slowly at the Department of Finance, but there is some merit in at least considering the deal.
The theory is to combine Brookfield's 5100 kilometres of rail tracks in Western Australian with the government's Australian Rail Track Corporation, which has another 8500km network, and Asciano's Pacific National to create Australia's biggest rail company and a top-level company which would potentially attract North American investors by the bucketload.
The deal would see Brookfield expand its Australian rail presence, which it has shown it is keen to do, and solve the government's headache at ARTC.
ARTC PROBLEMThe problem with ARTC is that it has two distinct businesses; a profitable and attractive arm servicing Hunter Valley coal mines and an interstate network that struggles to make a return above its cost of capital. Making it part of a bigger group may help hide the weaker legs, sources said.
And including Pacific National could leave Asciano as a pure play port operator.
Credit Suisse analysts, who considered such a split, reckon Asciano's container terminal automation could prove beneficial for Brookfield in North America. Brookfield also has port space in the UK and Europe, as well as the Dalrymple Bay Coal Terminal in Queensland.
It's a lot to think about and there are plenty of moving parts. But all the balls are in play and there is funding around to get a deal done should Brookfield or a Macquarie Group type of buyer feel capable of organising the debt and putting the pieces together. (Although Asciano has entered exclusive talks with Brookfield.)
As for the ARTC mandate, bankers are busy working on pitches ahead of the Friday deadline for proposals. Banks involved in Aurizon's listing in 2010 – Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs and UBS – are expected to pitch, along with the usual infrastructure heavyweights including Lazard, Morgan Stanley and Macquarie Capital.
This article first appeared on www.afr.com
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