Further to the Brookfield takeover proposal, a consortium led by QUBE Logistics has also lodged an indicative offer to acquire the equity in Asciano
Last week, Asciano received an indicative proposal from a consortium led by QUBE Logistics to acquire all of the equity not currently owned by the QUBE Consortium at an implied value of A$9.25 per share. The consideration payable under the proposal would comprise a combination of cash and equity. The QUBE consortium currently has a stake of around 19.9% in Asciano.
The announcement follows Brookfield Infrastructure Partners’ prior takeover offer for Asciano. Both the Brookfield and QUBE offers are subject to approval from Australia’s competition watchdog the Australian Competition & Consumer Commission (ACCC). The ACCC has already raised concerns around the Brookfield proposal and may do the same for the QUBE proposal.
Credit rating implications
Following the news, Moody’s has indicated that the QUBE proposal has no immediate impact on Asciano's current Baa2 credit rating or negative outlook.
The negative outlook on Asciano's credit rating by Moody’s continues to reflect the uncertainty and risks associated with the potential takeover of the company, particularly if a binding offer is made by the QUBE consortium which may seek to break up Asciano.
Since the QUBE announcement, Ascicano bond prices have fallen around $4-$5 reflecting a heightened uncertainty following the second takeover proposal. There are a lot of unknowns in relation to the QUBE consortium’s plan at this stage, including the debt mix or the likely ratings outcome. However, we note Moody's is not taking any rating action at this stage given the uncertainty around the potential offers by QUBE and Brookfield.
Asciano’s credit rating could be downgraded if a successful bid emerges which leads to an increase in financial leverage outside of the current rating parameters. A downgrade is also possible if a bid emerges which would lead to a split up of the company without an associated reduction in debt to offset the lower expected earnings and changes in the business profile for the remaining entity.
Asciano bonds have a change of control investor put clause, which if triggered, would require Asciano to repurchase the 2025 bonds at $100. The change of control clauses would only be triggered if Asciano's credit rating was rated investment grade by less than two rating agencies as a result of the change of control, and that the acquirer takes more than 50% ownership of the company. Asciano is rated BBB (stable outlook) by S&P and Baa2 (negative outlook) by Moody’s and it would take a 2-notch downgrade from one or both of the rating agencies to trigger the change of control based on the current ratings.
Please note however that there has been no indication from either of the new prospective owners that they will raise more debt at the Asciano level, so the outlook change and fall in Asciano bond prices is purely based on the uncertainty around the prospective new owners’ future financial policy as well as the potential for a breakup of the company post takeover.
The takeover process in relation to Asciano remains ongoing and the fact that another party has lodged a takeover proposal has added further uncertainty to the process and final outcome. We will continue to monitor the situation and provide further updates as more details emerge.
Given the bond price fall, it is understandable that bondholders might consider selling, however we think it’s probably a little premature to exit the position given the takeover process is still ongoing and will probably continue to evolve over the coming months. In the interim, Asciano's investment grade ratings continue to reflect its network of infrastructure and transport businesses, which are essential, integrated components of the Australian logistics chain.
Please contact your FIIG representative for further information on the Asciano bond.