Adelaide-Darwin operator goes bust

Date: 06.11.2008

"Confident" of services continuing, but operators of Adelaide to Darwin rail link go broke

Adelaide to Darwin rail operator goes bust

The embattled operators of the Adelaide to Darwin rail freight link have gone bust, but the company insists services will still run.

FreightLink has announced the appointment of voluntary administrators KordaMentha after a possible takeover for the group fell through.

The company, which has battled to make a profit despite shifting its focus from general freight to bulk mineral haulage, declared it was for sale in May, sparking interest from companies including Toll and K&S.

FreightLink says an unnamed preferred bidder was found in September for a price "significantly higher" than debt levels.

But while shareholders approved the deal, some so-called ‘mezzanine debt holders’ would not consent and requested senior banks make some contribution to repaying debt.

"This was not acceptable to the senior banks as the offer from the preferred bidder was well in excess of the senior debt," the company says in a statement today.

FreightLink Chairman Malcolm Kinnaird says the board was "very disappointed" an attractive bid had been thwarted.

"I would like to acknowledge the shareholders, senior banks and the mezzanine debt holders who supported the sale process and all those, particularly our customers, who have contributed and will continue to contribute to FreightLink’s operational success," he says.

"I also acknowledge the sustained and high quality effort of the management team to achieve the operating results and sustain a high level of growth in the business."

Kinnaird says the railway has achieved significant operational results since launching in 2004 and the business continues to grow strongly.

Earnings last year on the back of new mining contracts jumped 73 percent to $28.6 million.

But the "considerable debt" incurred in building the trans-continental link forced the sale process earlier this year.

"However, the operational success of the railway in converting 90 percent of the general freight between Adelaide and Darwin to rail and in capturing four minerals projects in its first five years of operation is testament to the quality of the asset," Kinnaird says.

"The construction of the new railway has generated significant economic benefits for the Northern Territory and South Australia and has been instrumental in helping to establish a viable mining industry along the railway corridor, providing the means to transport minerals cost effectively for export overseas."

He says the outlook for the business "under a more appropriate capital structure" is positive, saying he’s "confident" a solution will be found to allow the business to continue operating.

Receivers and managers will continue looking for a buyer, which Kinnaird insists will not impact customers.

"Business operations will continue as usual," he says.