DataRoom AM: Virgin booster shot

Virgin Australia’s biggest shareholders have lifted their stakes in the airline by 4 per cent thanks to retail shareholders showing little interest in Virgin’s latest capital raising. Given the Australian aviation sector is in a pretty rough spot, it is no surprise most shareholders didn’t take up their entitlements. Nevertheless, Air New Zealand, Etihad Airways and Singapore Airlines won’t mind picking up the slack, with everything largely going to plan with their investments so far.

Elsewhere, Transurban Group appears set to make a play for Queensland Motorways, Queensland moves closer to several privatisations and the Commonwealth Bank of Australia goes far and wide with a new purchase for investment fund First State Investments.

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

The public fears of Qantas Airlines boss Alan Joyce have come true, with Virgin Australia’s retail shareholders paving the way for the group’s major shareholders Air New Zealand, Etihad Airways and Singapore Airlines to increase their stakes.

The controversial $351.5 million Virgin capital raising was the subject of a war of words between Joyce and his Virgin counterpart, John Borghetti, with the former arguing it was part of a takeover by stealth of Qantas’ main rival.

While Qantas was unsuccessful in getting the raising blocked by government – Joyce swung for the fences on that one – the Australian Shareholders Association was likewise unable to get the deal altered via a complaint to the Takeovers Panel.

The raising consequently proceeded as planned, but retail shareholders only took up a quarter of their entitlements leaving underwriters Air New Zealand, Etihad Airways and Singapore Airlines to boost their stakes.

As a result, the big three international airlines have raised their combined position in Virgin to 67 per cent, a level at which Qantas can only dream given the foreign ownership restrictions in place on the national carrier.

Air NZ, Singapore and Etihad had previously held 63 per cent of Virgin stock.

We have often speculated in this column about the endgame – do the international firms want to take Virgin private or are they happy with where they are?

It would be hard to foresee the companies sitting pat for a period much longer than a couple of years without someone getting itchy feet and with all three soon to receive a board seat at Virgin, there is the promise of a shake-up.

But that doesn’t mean Virgin will be taken private anytime soon.

The popular perception is the closest alliance between the three is Air NZ and Singapore, but in reality Air NZ and Etihad are much closer thanks to a significant codeshare agreement. Still, most rumours centre on an Air NZ and Singapore takeover down the line.

We doubt that will happen, with Etihad unlikely to go calmly into the night.

Indeed, little action can be expected in the near-term as all three major shareholders are largely getting what they want out of their shareholdings: a strong link with Australia and a more powerful competitor to keep international rival Qantas distracted by local issues.

Now they just need Virgin to turn a profit.

As for Qantas, it is likely to be on its own in its fight with Virgin et al, with the government’s decision to cease the bailout culture with the car sector not a good sign it will be willing to chuck money at the national carrier.

It seems the state of the federal budget will make it very difficult for companies to get much more than cordial conversations out of requests for aid.

AustralianSuper, Transurban Group, Queensland Motorways

Transurban Group and AustralianSuper will work together on a bid for Queensland Motorways, according to The Australian Financial Review.

Last month, QML owner Queensland Investment Corporation said it had hired UBS and Macquarie Capital to advise on a possible sale, with the process likely to kick-off in the first quarter of 2014.

Speculation has suggested the toll road group could expect offers in a broad range of $4 billion to $7 billion, with Transurban, Australian super funds and Canadian pension funds considered the most likely suitors.

According to the AFR, Transurban found its ideal partner while QIC was pursuing a two-week global roadshow, which has just come to an end.

Transurban indicated its interest last month when boss Scott Charlton said it was a “good asset with good people” and his firm would be keeping an eye on progress of the auction. He was speaking as the company made a $475 million private equity-like move on the Cross-City Tunnel asset in Sydney.

Given the size of Queensland Motorways, Transurban was never thought capable to bid on its own, but with the deep pockets of AustralianSuper and its deep knowledge of the value of toll roads in Australia, the joint venture will have a strong chance of getting its target.

There is still no decision on the structure of the planned sale, with QIC still mulling the potential for a float. However, with signs of weakness creeping into the IPO market and already high – if tentative – bids reportedly provided, that appears less likely than a trade sale.

QIC is looking to wrap up a deal by April, the AFR said.

Queensland government, privatisations

Investment banks have been tapped to run scoping studies on several Queensland government-owned businesses as the privatisation plans of state and federal governments around the country gather pace.

The businesses include electricity generators CS Energy and Stanwell as well as the ports of Gladstone and Townsville.

The state’s treasurer, Tim Nicholls, is adamant there will be no sell-offs prior to the next election, but it’s clear the assets will likely be on the auction block sooner rather than later.

The banks will report on the findings of the studies by the end of February, the same time as a scoping study into the federal government-owned Medibank Private is due for completion.

Nicholls said the government was also mulling the sale of stakes in electricity businesses Ergon, Energex and Powerlink, with this plan possibly getting the all clear before Queenslanders next go to the polls.

The privatisation spree around the country is in response to rising government debt levels.

Linc Energy

Linc Energy, which shocked markets a few months ago with plans to delist from the ASX and relist on the Singapore Exchange, has secured Malaysia’s conglomerate Genting as a major investor in its Singapore IPO.

It is quite a coup for Linc boss Peter Bond with Genting a giant in Asia and it’s an important step to raising almost $48 million through the Singapore float.

Linc will join the Singapore Exchange on December 18, with hotel and gaming giant Genting claiming 10 per cent of its stock.

Credit Suisse, DBS Bank and JP Morgan are serving as lead advisors on the offering.

Wrapping up

In Finland – yes, Finland – a Commonwealth Bank of Australia investment fund has made a multi-billion splash. CBA’s First State Investments has teamed with Canadian pension fund Borealis Infrastructure and Finnish pension funds Keva and LocalTapiola to buy the Finnish electricity distribution business of Fortum for around $A3.9 billion. First State will claim 40 per cent when the transaction is completed in the first quarter of next year.

Fortum’s electricity grid accounts for 20 per cent of the total power consumption of the Nordic country.

Finally, the Mark Bouris-chaired biotech Anteo Diagnostics has tapped Bell Potter to raise $7.5 million for its development, according to the AFR.