Shell pumps attract Super Fund

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An unexpected billion-dollar punt by Infratil and New Zealand Superannuation Fund may hinge on how badly Shell wants to sell its petrol pumps.

The announcement that the consortium is in exclusive talks with Shell for its petrol stations and other "downstream" assets surprised some market analysts, but former BP head Peter Griffiths said Infratil could be on to a good thing.

Infratil's share price was down 6 cents to $1.59 on the news, with some speculation that it may need to raise money from shareholders to finance its share of an investment in Shell.

There was no indication of how Infratil and the Super Fund might split the investment.

Shell put its downstream business, estimated to be worth $1 billion, up for sale after a review in April. It has now confirmed it has narrowed the field to one.

Mr Griffiths suggested Shell may have had little choice over the buyer, and the purchaser might yet get a very good deal.

"Shell is a motivated seller. They are not likely to have a huge number of buyers. If they can get a modestly good price, they'll be likely to take it."

New Zealand was a long way away, had little growth potential as a developed country and probably was not particularly enticing for possible investors from around the world.

Big oil companies were already overstretching their cashflow to support massive global operations, and were universally looking for areas to cut back on.

"They will all be favouring their upstream [exploration and production] businesses. There is no margin in refining now either," he said.

Early speculation over buyers for the Shell package suggested Indian energy company Hindustan Petroleum and global fund manager TPG.

Shell's competitors BP and Caltex would have needed Commerce Commission clearance to buy Shell's businesses, and Mobil has already decided it wants to get out of petrol retailing.

Infratil and NZ Super had the advantage of not being constrained by overseas investment rules or competition watchdog scrutiny.

Infratil's understanding of the assets on offer is multi-faceted, with its chairman, David Newman, a former BP boss and chairman of Loyalty New Zealand. Another director, Mark Tume, is on the NZ Refining Company board as well as the NZ Super Fund's board.

"They are not babes in the woods here," Mr Griffiths said.

Forsyth Barr head of research Rob Mercer said the proposition was "out of left field" and Infratil's energy focus on electricity was not particularly close to the retail space petrol stations represented.

"We would not have thought this was something [Infratil] were necessarily interested in. They will need to be able to articulate how this fits in with their whole investment philosophy."

Infratil investors would want to know the company was buying value and that was hard to ascertain with so little information.

Infratil had not generated a lot of investor support in its investment decisions in the recent past, Mr Mercer said. "Things like NZ Bus have not been successful and there has been clearly unwinding confidence around European airports."

However, many of its older assets had performed well, he said.

Shell had been the best performer of all the retail petrol brands during the past decade, with good growth. "They are not buying an underperforming business, but that's today."

Craigs Investment Partners private wealth research head Mark Lister said the investment was not an obvious move for Infratil, but without knowing the price of the deal it was hard to judge.

"Maybe it's just something that looks like a good-value opportunity."

Shell's 17 per cent stake in NZ Refining Company was just over fair value at the current share price of $5.22 but certainly not coming at a discount, Mr Lister said.

Craigs Investment Partners' valuation of the stock was $4.90.

"It's certainly interesting. [$1 billion] is a decent-sized number, so if it gets to a point that the due diligence is looking good, Infratil shareholders will be asking how this will fit into the portfolio.

"Maybe there's a need to come to the market for more equity, or maybe they are looking to divest something, to be replaced with these assets."

THE SHOPPING CART - WHAT'S ON OFFER:
229 Shell service stations
95 Shell truck stops
17.1 per cent of listed company NZ Refining Co
25 per cent ownership of Loyalty New Zealand (Fly Buys) Access to refinery and pipeline capacity
Ownership/access arrangements to joint national distribution network
Sales and distribution network
Facilities at Auckland and Christchurch airports
What's not: 36.6 per cent of Fulton Hogan