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Infratil, Superfund complete Shell purchase

Fuseworks Media
Fuseworks Media

Wellington, March 29 NZPA - Infrastructure investor Infratil is confident further opportunities will arise from its 50/50 joint venture with New Zealand Superannuation to buy Shell New Zealand's downstream assets.

It is also looking to gain an advantage from having the industry in the hands of New Zealanders.

In an announcement today, Infratil said the joint venture partners were paying a base purchase price of $696.5 million, with the deal due to be completed on Thursday, subject to conditions. An adjustment will also be made for actual net working capital as of Thursday.

The new owners are buying a 17.1 percent interest in the New Zealand Refining Co, valued around $190m, Shell's retail network and commercial customer base in this country, distribution, storage, marine and aviation assets, the rights to use the Shell retail brand, a 25 percent share in Fly Buys, and supply of Shell fuels and products.

Infratil chief executive Marko Bogoievski said the joint venture partners were making equity investments of $210m each, with $350m of core bank debt to complete the acquisition and provide enough cash and buffer for immediate activities such as capital spending.

A further $250m working capital facility was available for credit and debt facilities when working capital peaked, such as when two large shipments turn up at the same time or when needed due to movements in oil prices and foreign exchange rates.

"It's an industry we think offers attractive returns. We know it's about to go through quite significant change, not just because some of the players are exiting, but because the nature of the business is changing," Mr Bogoievski said.

While the Shell business was well run with capable staff, there were clearly some opportunities for improvement and it should respond well to investment.

Both Infratil and NZ Super were investors with "very long term horizons", and Infratil expected the investment to form a core part of its portfolio for a long time.

"And it we do it right, I think we'll identify and throw up additional capital investment opportunities at quite attractive returns and will be very opportunistic, I think, as the industry starts to consolidate."

In the short term, changes would probably not be obvious to retail customers, while in the background the implementation of some changes would start, such as new crude supply arrangements, Mr Bogoievski said.

The new owners would be carrying out strategy work to determine how to make selective investments along the value chain -- from supply and crude shipment optimisation through to convenience retail.

No guidance was being given on the business' expected performance now, but Shell's result for the 2009 calendar year was a "reasonable expectation". That result shows that in 2009, Shell NZ reported earnings before interest and tax of $157m.

Once the deal goes through, Shell will account for 10 percent of Infratil's assets, which are dominated by TrustPower which accounts for 48 percent.

Infratil's capital structure after the deal will include equity of 49 percent and bank debt of 13 percent.

Mr Bogoievski said Infratil had started the transaction with "minimal" bank debt, and afterwards would have "quite a comfortable" equity structure.

While Shell was getting out of downstream businesses in this country and Exxon Mobil was marketing its downstream business, such movements were a natural course of events.

Infratil did well when markets were undergoing significant change, and the deal was fundamentally a good news story for investors and customers, with two New Zealand investors buying an asset that had been held for a long time by a multinational, Mr Bogoievski said.

"It's an efficient network with a changing industry structure that should still respond well, I think, to ongoing investment and we are prepared to make those sort of investments."

The business would respond well to local ownership.

Shell had done a "fantastic" job building the business, but it was part of a global organisation, and managing to optimise at a different level than just the New Zealand result, he said.

"But in New Zealand we're going to run this as an asset that's actually going to benefit New Zealand and New Zealand shareholders. There is evidence of some growing preference for New Zealand-based organisations. You should expect us to emphasise that over time without necessarily assuming anything about the actual brand we're going to use."

Multinationals had a different set of objectives, Mr Bogoievski said.

"The reasons why, I guess, they haven't invested particularly a lot of capital on an incremental basis in these markets is because they've simply got better opportunities upstream in offshore markets, or faster growing markets."

The Shell deal would benefit local stakeholders "tremendously", whether it was where profits were going to be retained, creating more local jobs, or having capital spending end up in local businesses.

The new owners would look to bring some R&D and product innovation onshore, where possible.

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