Australia's largest gas transport business APA Group (ASX: APA) yesterday announced the proposed acquisition of the Queensland Curtis LNG (QCLNG) Pipeline for US$5 billion.
The giant purchase will be funded via a mixture of debt and equity with funds drawn from syndicated debt facilities and a further $1.89 billion to be raised via a renounceable entitlement offer to eligible security holders. The purchase is expected to be operating cash flow per security positive in the first full year of ownership.
Eligible retail security holders have until 15 January to apply for the shares, which at $6.60 are available at a heavy discount to the market price of $7.97 prior to the announcement.
With iron ore and coal perhaps in long-term bear markets many investors are now looking to Australia's east-coast LNG operations to deliver long-term capital gains.
At the heart of the LNG industry is the Gladstone LNG (GLNG) project in part operated by Santos Ltd (ASX: STO). The acquired pipeline will transport gas from fields in the Surat Basin to LNG export facilities at Gladstone around 540kms away.
From there the LNG is likely to head to the energy-hungry markets of Asia, where demand growth has more solid long-term fundamentals than commodities like iron ore or coal.
With the RBA's next move in cash rates now expected to be down rather than up, cash-generating businesses like APA Group are likely to be at the top of many investors' shopping lists.
Estimated distributions for the full year to 30 June 2015 are expected to be at least 36.25 cents per share meaning the group trades on an unfranked yield of 4.55% when selling for $7.97. The defensive earnings streams are also likely to be attractive to more conservative investors looking to avoid investing in other areas of the Australian economy that may run into headwinds in 2015.
