I just took a look at the share offer document for QR National, and discovered the interesting fact that the company has only $500 million in debt. Looking at the 2009-10 accounts, QR had debt of $7 billion. Of this, $4.3 billion in debt was allocated to QR National, when QR was restructured.
The offer document shows that this was followed by
a restructure of borrowings under which $4.3bn of borrowings from QTC will be transferred to the State under Transfer Notice for nil consideration prior to Settlement (emphasis added)
That is, to sweeten the sale offer, the government has taken $4.3 billion of QR debt onto its own books. It looks as if the government will only sell about 60 per cent of the shares and the price will be at the low end of the indicative range, so the cash proceeds of the IPO will be something like $3.6 billion. That is, it appears that the additional debt taken on by the state as part of the sale will offset nearly all of the sale proceeds assuming a good outcome, and will more than offset the proceeds if the IPO goes poorly. To be sure, the state will still have 40 per cent equity in QR National worth about $2.4 billion, as it did before, but it does not appear that there will be any money at all for schools and hospitals, even on the spurious cash accounting favored by the government.
I’m now fairly confident my analysis is correct. However, I’d welcome correction from anyone who has better info.
Postscript: Another way of looking at this is that the old QR had a gearing ratio of about 65 per cent, so the government’s equity was equal to about 35 per cent of the total capital value. Having taken all the debt onto its own books, the government will sell about the same proportion of the company (now all equity), so its net worth is essentially unchanged, as is the financial position of the general government sector. All that has happened is that QR’s debt has been converted into private equity.
11 thoughts on “Balance sheets (updated)”
surely someone will be better off John? It can’t be all bad.
If the company is worth less in private ownership (perfectly possible because of different costs of capital) everyone can be worse off, except of course for the bankers paid to run the process. Still, the apparent loss seems too big to be right.
thanks John – it would be interesting to see who has benefited from the ppp’s and sell-offs, and by how much. Presumably brokers and insurance underwriters benefit – there must be a general class of people who are doing nicely from these policies, as well as specific firms who tend to get favoured.
so what are the politicians who are pushing getting out of this crooked deal exactly? It seems in the state of QLD things political are very questionable indeed. Its time to do away with State Governments entirely methinks.
Treasurer Fraser just announced that they’ve sold our Port of Brisbane for some magical beans, $2.3 billion or something.
Apparently he was crowing that the new owners are going to have to pay a few hundred million to fix the state-owned road out to the port. “Ha, ha, ha, you suckers. We dumped a lemon on you”, or something like that.
Prof Q had a good article about this idiocy in Fairfax online today and a great book exposing some examples of disasterous privatisations is “In Government We Trust: Market Failure and The Delusions of Privatisation.”
thanks for the book reference Megan – looks just what I was wanting
“All that has happened is that QR’s debt has been converted into private equity.”
Now the other shoe drops. Qui Bono? Whoever it is, I bet they’re going to make a fat campaign donation to QLD Labour.
Pr Q said:
Shorter Quiggin: The sale of QR’s commodity freight business will be, at best, cash-neutral. So this whole exercise has lined the pockets of pixel-shuffling parasites but do nothing for the funding of community services.
Jesus had the right idea: take the whip to these blood-suckers.
BTW: Time to raise two cheers for Joe Hockey for coming out and saying what most people have been feeling for ages. Go Joe!
This analysis looks fine but incomplete? Shouldn’t it also include that QR has a debt facilitry of $3 billion for capex in near future years? On the numbers here QR could not have debt financed that without going close to 100% gearing subsequently a capital injection of aroiund $3 billion would have been required by the Guvmint? Is this where the missing budget cash advantage is?
Not intended as either for or against and the question it raises is exactly the criticism froom the coal industry that QR has been starved of capital and so held back the Qld economy? Note the interesting trend employment numbers posted at Peter Martin’s blog today where Qld only beats olde worlde Tasmania on em[ployment creation in recent months?
Oops sorry no my head was in the wrong place capex wouldnt take it to 100% but to more uncomfortable levels although competitor Ascianlo is also I believe highly geared.