DataRoom AM: Telstra's Chinese bonus

Telstra is set to make a strong return on its Chinese car sales website, while potential suitors eye the Port of Newcastle.

Telstra Corporation, Australia’s largest telco, is planning to list its Chinese car sales website on the New York Stock Exchange in a deal that, if nothing else, puts a spotlight on the globalised world we live in. The timing of the float appears close to perfect, with plenty of buzz about tech listings in the United States over recent months.

Elsewhere, the Port of Newcastle gets put up for auction, Pact Group’s float appears likely to trump Nine Entertainment’s in terms of size and senior Liberals worry about the risks to the GrainCorp takeover.

Telstra Corporation, Autohome

Telstra Corporation is keen to capitalise on the positive environment for new listings through the float of its $1 billion Chinese car sales website Autohome.

The planned listing on the New York Stock Exchange – first mooted in April – comes as the US market has just seen its best month for IPOs in six years. Crucially, it follows several successful tech listings on Wall Street that attracted high earnings multiples.

If you factor in the current strength of the US IPO market, the float could value Autohome at upwards of $1.5 billion, although the current market expectation is $1 billion.

The Australian telco’s 71.5 per cent stake would be worth around $1.1 billion based on a $1.5 billion valuation.

Highlighting the rapid rise in valuation, Telstra paid just $37 million to acquire an additional 11 per cent in Autohome last year, which essentially valued the entire company at just shy of $340 million.

Such a deal would represent a great return for Telstra, which first picked up a 55 per cent stake during the reign of former chief executive Sol Trujillo, arguably his one high quality Chinese investment.

It is not known, however, how much Telstra plans to offload into the share sale.

The move further highlights the group’s changing strategy to focus on internet and cloud computing services in China.

While the long awaited decision has largely been welcomed by analysts, investors were hardly jumping out of their skins with excitement, leaving the telco’s share price unchanged yesterday. Still, given the announcement wasn’t considered market sensitive that isn’t too surprising.

Indeed, it’s nice to be a company so big that a billion dollar float of a subsidiary isn’t considered material.

After the listing Telstra will retain a controlling stake in the business provided it maintains at least a 39.3 per cent share in the website.

Port of Newcastle, Medibank Private, Macquarie Generation, privatisations

A scoping study of the Port of Newcastle has confirmed a sale is the right move for the NSW government.

A sale is expected to reap around $700 million, with a number of potential suitors already declaring strong interest, according to the state’s treasurer, Mike Baird.

Expressions of interest will be formally called for before the end of the month as the government looks to whittle down a shortlist.

The recent successful privatisation of Port Kembla and Port Botany for $5 billion all but assured Newcastle would be next. Now eyes will turn to other ports around the country, with Port Hedland and Fremantle in WA and the Port of Melbourne in Victoria considered likely privatisation candidates.

The news comes as the NSW government selects a shortlist of bidders for Macquarie Generation, the largest electricity generator in the country. According to the Wall Street Journal, the suitors left in the running include AGL Energy, China’s Shenhua and ASX-listed ERM Power.

Final bids need to be tabled by the end of January for what many believe is a $2 billion asset. However, given softness in electricity demand across the country, don’t be surprised if a deal falls short of that mark.

Meanwhile, the federal government is awaiting proposals from investment banks to carry out a scoping study on its Medibank Private asset ahead of a possible IPO or trade sale in early 2015.

Pact Group, Veda, Morgan Stanley, IPO market

While most market watchers are focussed on the high profile float of Nine Entertainment, attention is being drawn away from the biggest local IPO of the year.

Pact Group, owned by billionaire son-in-law of the late Richard PrattRaphael Geminder, is quietly making plans to raise at least $650 million, according to The Australian. A raising of that size is as much as $100 million more than Nine’s owners hope to bring in through their December 6 listing.

According to the report, Geminder will commit to a December listing should a management roadshow stir the desired amount of interest, with a prospectus to be released in early December.

Pact, a packaging firm based on the east coast, is likely worth around $2 billion and presents a contrast to many other planned listings, which are dominated by private equity sellers.

Meanwhile, Morgan Stanley has reportedly claimed the role of lead manager for a float of storage fund National Storage. The Australian Financial Review reports that the $206 million National Storage could attract an international partner given the exit of APN Property Group from the fund.

Elsewhere, the around $341 million raising for the $1 billion credit checking firm Veda is progressing smoothly, with the book build heavily oversubscribed. The Pacific Equity Partners-owned group is expected to list early in December.

GrainCorp, Archer Daniels Midland

The Medibank Private privatisation isn’t the only issue for federal Treasurer Joe Hockey to think about, with approval for Archer Daniels Midland’s $3.4 billion takeover of GrainCorp also playing on his mind.

According to the AFR, key Liberals are in favour of the sale and, as we have suggested in this column previously, mulling the option of conditions to go some way to appeasing angry National and country Liberal colleagues.

However, according to the report, the Nats have no interest in conditions and want the sale blocked outright, while Libs in the pro-deal camp are worried the conditions being considered could scupper the deal. Such a development would not bode well for Tony Abbott’s “open for business” pledge.

An official decision is expected on December 17.

Wrapping up

There were no fresh developments in the chase for Warrnambool Cheese and Butter yesterday, however the dairy group’s shares rose a further 3 per cent and now rest 7 per cent above the best offer price. A slight dip in the Bega Cheese share price, meanwhile, saw Saputo reclaim the position of highest bidder.

In property, draft valuations provided to the Commonwealth Property Office Fund will lift the group’s book value by $60 million. It adds further pressure to suitor Dexus Property Group to raise its lowball bid, which remains below CPA’s current share price.

In resources, Linc Energy has abandoned its underground coal gasification project in Chinchilla, Queensland. The group, which is soon to delist from the ASX, said the decision was based on limited enthusiasm from the Queensland government compared to what it has received in Asia.

Meanwhile, fund manager PM Capital is looking to raise as much as $200 million through its first fund listing in December, according to the Wall Street Journal.

Finally, Suncorp chief executive Patrick Snowball has offloaded a few million dollars’ worth of shares to help pay a tax bill. Most can only dream of having tax commitments so large they would be required to sell $2.7 million worth of shares.

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