AusRAIL, Market Sectors

QR float to fund new investment sector for rail

<span class="" id="parent-fieldname-description"> With billions of dollars of investment required to meet the demands of the Australian rail network in coming decades, the major question being asked in today’s market is not when it will happen but how, writes Francis Dwornik*. </span> <p>Where are the billions going to come from to fund the rail networks needed for the mining industry, to update the ageing public transport infrastructure in the capital cities and to fuel the potential of high-speed rail?</p><p>One clear indicator of how we can find the money will be the outcome of the Queensland Rail (QR National) partial privatisation that could become the bellwether for heavy rail in the same way Telstra was for telecommunications in 1990s.</p><p>The Queensland Government has two viable alternatives for offloading QR’s rail freight network, one of which is the $4.85-$5.2bn offer by a consortium of 13 mining companies and the ARTC.</p><p>Alternatively, the Queensland Government is positing a partial float of the network and above-rail haulage business. A 75% stake has been valued at about $7bn.</p><p>QR National is Australia’s largest coal logistics business and runs 85% of the Queensland market.</p><p>How a QR float ends up looking would reflect the outlook for the fundamentals of a growing and maturing market, and may well create the precedent for the billions of dollars that need to flow into the rail sector.</p><p>While the risks of pursuing an IPO, versus a fixed price of $5bn-plus from the consortium, are recognised, the potential value to the overall market will be very positive regardless.</p><p>The IPO would value the income streams of rail – in this case, via the mining industry – and would both allow future projects to be valued accurately and determine the levels of funding that can be achieved.</p><p>The funding options are varied and include government funding via bond issues, Public Private Partnerships, IPOs and a number of other financial products.</p><p>Underlying all these options is fundamental market confidence and a market keen on the very government bonds that would provide the AAA rating to assist making such a long term venture financially viable.</p><p>With rail infrastructure works set to boom and huge climbs in urban rail patronage being recorded worldwide and here in Australia, there is great need for governments to invest in the sector. This means the idea of privatizing must remain alluring.</p><p>Rail is a growing business that promises to be the solution to many of society’s pressing problems including the rapidly rising population and&nbsp green house gas emissions.&nbsp And if government can get it off its books and transfer the risk to the private sector – especially rail freight or high-speed rail – then so much the better.</p><p>This shift to rail represents a significant new business opportunity in the market place and will radically alter how rail is valued, invested in and funded in the future.</p><p>In a recent article, three analysts believed bond money to fund the East Coast high-speed rail project could be raised if a financial argument could be sustained.</p><p>There is no reason why this same logic could not be extended across any other rail investment opportunity.</p><p>The next critical area of the rail industry that needs to be examined is the successful delivery of these massive and complex rail projects.</p><p>*Francis Dwornik is Rail Engineering Director of O’Donnell Griffin Rail: <a href="http://www.odg.com.au" target="_blank">www.odg.com.au</a></p><p>&nbsp</p><p>&nbsp</p>