Final port of coal? The Brookfield Dalrymple IPO

5 minute read

The Dalrymple coal terminal is one of the world's biggest pieces of coal infrastructure and is being put up for sale by Brookfield, a Canadian asset manager. There is a lot to comment on as the IPO process enters the retail marketing stage. We iterate our view that a first step to make the Dalrymple Bay IPO aligned with what we deem to be responsible investment guidelines/coal exclusions would be to shut the thermal coal part of it.

We consider that it would be good economics through a reduced funding cost channel as well as having a positive climate impact. At first glance, the indication was for a post IPO dividend yield of around 5.5-6%, but as time has progressed this has been lifted to 7%. In this context it should be noted that Industry Queensland is reporting an intention of Brookfield to increase coal capacity of Dalrymple from 85 million tonnes of coal per annum (MTpa) to 100MTpa.

Given such aggressive expansion plans in a sector that many market participants believe is struggling, it may be less of a surprise that institutional investors appear to not have been playing ball so far. We think that even with an indicated 7% distribution yield, we would have some question marks around several factors in the transaction, that now appears on track to be marketed to retail investors.

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