Queensland is selling half its stake in Aurizon Holdings - formerly QR National - for about $806 million to pay down debt, the Treasurer said.
The state is selling 200 million shares at $4.03 each, Tim Nicholls said in an emailed statement. The stock closed at $4.04 on Friday.
Its holding in Aurizon, Australia's biggest transporter of coal by rail, will fall to 8.9 per cent, or 189.2 million shares, from 18.2 per cent, when the sale is completed, he said.
The Queensland government sold most of the company, then known as QR National, in 2010 in what was the second-biggest float in Australia's history.
Queensland, Australia's most indebted state, is aiming to return its budget to surplus in 2014-15 as Premier Campbell Newman attempts to win back its AAA credit rating. The state has benefited from cutting its investment in Aurizon as the shares climbed 58 per cent from their November 2010 listing.
"Now is not a bad time to be raising funds with confidence coming back with markets having rallied," said Nader Naeimi, the head of dynamic asset allocation at AMP Capital Investors, which manages about $US126 billion. "There might not be a better time to do it. Presumably they have got a better use for the money somewhere else."
Mr Nicholls said the deal would provide more funds to pay down debt. The government will receive a 4.1¢ per share dividend from Aurizon on the shares that have been sold, payable on March 27. Proceeds from the sale are likely to be received on Thursday.
Mark Hairsine, a spokesman for Aurizon, did not immediately respond to a request for comment.
"The $806 million sale represents a gain of about $300 million to Queensland's bottom line since the IPO," Mr Nicholls said. "While the government will continue to review its residual 8.9 per cent holding in Aurizon, we have no current intention to sell additional shares in the near term."
Queensland lost its top credit rating in 2009 after the then Labor government spent $54 billion to fix ailing infrastructure. Mr Newman, who was elected last March, has cut jobs and services to curb spending that he said risked turning Queensland into an Australian version of Spain.
Resource-rich Queensland depends on mining to drive growth in the state, which accounts for about one-fifth of Australia's $1.4 trillion economy and is the third-biggest state by population.
The state suffered flooding in January for the second time in two years. The Reserve Bank said the inundation "is having a noticeable impact on the transport of coal to ports but ... it appears the effect on exports will be much less" than in 2011.
Aurizon shares have climbed 8 per cent this year, compared with a 10 per cent advance on the S&P/ASX 200 index.