DataRoom AM: Fly buy

Etihad ups its Virgin Australia holding while Stockland puts half of the Piccadilly Complex on the market.

The plot thickens at Virgin Australia, with Etihad swooping on stock made available by Virgin Group. We are still none the wiser as to the plans Etihad, Air New Zealand and Singapore Airlines hold for the Australian airline, but there’s plenty of reasons for their interest. Elsewhere, Stockland looks for buyers of office property in Sydney, Leighton seals a rail deal for Whitehaven Coal’s Maules Creek project and the NSW government eyes another asset sale.

Virgin Australia, Virgin Group, Air New Zealand, Etihad Airways, Singapore Airlines

The mystery buyer of 2.5 per cent of Virgin Australia stock this week has been revealed, and it wasn’t Air New Zealand, as sources had told the Australian Financial Review. Instead, another major shareholder, Etihad Airwaysscooped up the shares – worth $30 million – to bring its holdings to 19.9 per cent. The move came after Etihad spent $79 million mopping up 7 per cent of the company in September.

As we suggested in this column on Wednesday, Virgin Group was the seller. The Richard Branson-run Virgin Group now has an even 10 per cent in the airline after starting the year with 22.5 per cent. It offloaded 10 per cent to Singapore Airlines in April.

The buying means Singapore Airlines and Etihad now have 19.9 per cent each, while Air NZ holds 22.9 per cent, with a lift to 25.9 per cent planned in the near-term. All up the three international airlines will soon control over 65 per cent of Virgin Australia.

The latest deal is intriguing as, until now, Etihad has needed to buy its stock on market while other significant shareholders Air NZ and Singapore Airlines have been able to get significant chunks off market, either through a raising from the airline or via Virgin Group.

We are still waiting, however, for news on the endgame. Does this merely represent three Qantas competitors bankrolling its main competitor to Qantas’ detriment? Is it three airlines simply seeking a strong ally in Australia? Or is it the prelude to takeover action?

If the latter, despite Singapore Airlines and Air NZ being in the Star Alliance together, the most likely outcome would be a joint bid from Etihad and Air NZ, or a sole play by either Singapore Airlines or Etihad.

Regardless of what happens, Virgin would be pleased to have some strong, strategic shareholders given the heavy debt load it has built up of late; largely through purchasing stakes in Skywest and Tiger Australia. Already it has arranged a $90 million credit facility with its three biggest shareholders in a signal of support for the direction it is taking.

Stockland Group

Stockland has called in Jones Lang LaSalle to assist with its planned sale of 50 per cent of the Piccadilly Complex in Sydney, according to The Australian. The deal will involve the 32-storey Piccadilly Centre office tower – home to the property giant’s head office – as well as the 14-storey Piccadilly Court and the two level adjoining retail mall.

The sale was first mooted in June but, according to the newspaper, Stockland failed to find an appropriate partner on its own. Colonial and Investa Property Group are reportedly among the interested parties.

The Complex, sans retail, has a book value of $313.4 million and is the third largest property in Stockland’s office portfolio. The retail centre has a book value of $54.8 million, making the combined value on Stockland’s books $368.2 million.

The property group is also pursuing a sale of the Optus Centre, also in Sydney, which is valued around $400 million.

Leighton, Whitehaven Coal

In what has otherwise been a shocking week for Leighton Holdings, the company has been awarded a contract to construct the rail loop for Whitehaven Coal’s controversial Maules Creek project. The value of the deal is not known, but it represents the latest in a series of contract wins for Leighton. News of alleged bribery in the Middle East, however, may cause the pipeline of new contracts to dry up over coming months.

Whitehaven Coal, meanwhile, says the deal is a “very important milestone” for the massive coal project given it has the longest lead time of the mining infrastructure required.

The $766 million project will be up and running in early 2015, pending the all clear from the Federal Court – which has to weigh up the merits of concerns from environmental groups.

Pillar, NSW government

The latest NSW government-owned asset to be auctioned off could be the Pillar superannuation business. The state’s treasurer, Mike Baird, yesterday flagged the on-again, off-again sale of the super administration group, which began with Labor moves to divest the asset back in 2008. The Labor government cancelled a sale in 2009, with rumours of an auction resurfacing last year.

Baird said the government was looking to avoid forking out the $30 million required to upgrade Pillar’s IT systems and property. With the budget strained, a sale is likely though not certain.

A deal would probably be in the tens of millions given past valuations and the upgrade costs required. It would also include conditions regarding the protection of the company’s 700 employees.

Wrapping up

A sale of Coates Hire may have been pulled in July by owners Seven Group and The Carlyle Group, but that doesn’t mean the company didn’t attract significant interest. According to the AFR, Malaysia’s UMW Holdings was closest to getting the group, with a bid around $3 billion, while next in line was Wesfarmers, which only lobbed a deal worth $2.5 billion the way of Seven and Carlyle.

Meanwhile, Transurban has again hinted interest in Sydney’s Cross City Tunnel. The toll road is currently in the hands of receivers with bids likely to see it valued around $500-$600 million. Transurban chairman Lindsay Maxsted told shareholders yesterday that “we expect some further opportunities to present in the portfolio going forward” after recent reports it was keen on bidding. A buyer is hoped to be found by early next year.

In mining, Sirius Resources is mulling a deal to claim full control of the Fraser Range nickel mine in WA, according to the AFR. The ASX-listed group owns 70 per cent with rich lister Mark Creasy controlling the rest.

Finally, there is still no official announcement on the expected Westpac buyout of Lloyds’Australian assets, but it should be forthcoming today, according to the Financial Times.

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