Petrol giant Caltex will offload a half stake in 250 service stations around Australia into a $1.1 billion listed property trust as the company grapples with a significant downturn in profit margins.
Caltex told the stock market it was planning an initial public offering (IPO) in the first half of 2020 for the 49 per cent stake in the fuel and convenience stations after a wide-ranging review of its retail network.
The company said it would retain a majority 51 per cent interest in the 250 sites – half of its current network of 500 petrol stations nationally – and enter into long-term lease agreements for each service station.
Caltex will keep its operational control of its core convenience retail network. RBC Capital Markets energy analyst Ben Wilson estimates the real estate trust will have an end value between $900 million and $1.1 billion, potentially providing a $550 million fillip for Caltex.
The listed trust will receive rental payments from Caltex of up to $100 million in the first year. Spinning off freehold property holdings has become a favoured method for large corporations to unlock cash in their business.
"Caltex is focused on unlocking value in our portfolio for shareholders and the segmentation of our network following our convenience retail network review has allowed us to consider a range of options to release capital from our high-quality property assets," chief executive Julian Segal said.
Caltex has been busy this year rationalising its network of convenience service stations. It is currently selling 50 fuel outlets, mainly in prime inner-city locations across the country, that can be redeveloped into apartments or other uses.
The mooted IPO comes as Caltex delivered an update on its convenience retail business, which has been suffering from lower refiner margins, the economic slowdown and subdued demand from sectors such as agriculture, transport and construction.
Caltex said it expected earnings before interest and tax from its petrol stations to be between $190 million and $210 million – an improvement from its first-half earnings following a recovery in fuel margins, but vastly lower than the previous year's profit result of $307 million.
Mr Segal said Caltex was outperforming its competitors in the petrol station market "despite the softer conditions from ongoing Australian economic weakness." Moody's vice president Ian Chitterer said Caltex's proposed IPO was credit positive in the short term as the company planned to use part of the proceeds to repay debt and strengthen its balance sheet.
But it was "negative in the longer term," Mr Chitterer said, as Caltex would "lose some of its financial flexibility." Caltex Australia chief financial officer Matthew Halliday said a “considerable amount of work" had gone into the planning of the IPO, and the company was confident it would succeed.
“We are coming out to the market because we have a very high confidence in our ability to execute,” he said. “Within six months we see that we will have executed the IPO and have the proceeds ready.”