Fitch Ratings has revised the Outlook on Port of Newcastle Investments (Financing) Pty Ltd’s (PON) Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior secured debt to Positive from Stable, and affirmed the ratings at ‘BBB-‘.
RATING RATIONALE
The Positive Outlook on PON reflects our expectation of improving cash flow and credit metrics, underpinned by the implementation of a shadow regulatory pricing model. The port will also prioritise reinvesting cash flow into non-coal revenue streams, advancing PON’s long-term revenue diversification strategy aimed at reducing reliance on coal-related revenue post-2030.
We expect this strategic reinvestment to support PON’s financial stability and operational resilience in the long term. We believe that these factors, combined with the improving credit metrics, will maintain support from domestic banks and capital markets for PON’s upcoming refinancing needs.
KEY RATING DRIVERS
Gateway to Coal Export Markets – Revenue Risk (Volume): High-Midrange
PON is the only export port with efficient infrastructure and established connectivity serving the Hunter Valley mining region in eastern Australia. Its high coal exposure is mitigated by the stable thermal and metallurgical coal supply, which is underpinned by 10-year evergreen marketable reserve requirements at its two coal terminals. Volume risk is further mitigated by the shadow regulatory pricing model, which allows revenue to increase independently of coal throughput volume through a true-up mechanism.
By mid-2030, PON projects non-coal revenue to be around 50% of its total revenue, excluding both coal trade and coal lease income. This diversification strategy enhances PON’s appeal to lenders and investors, aligning with broader sustainability and transition goals.
Shadow Regulatory Pricing Model – Revenue Risk (Price): Stronger
PON has demonstrated pricing flexibility, successfully mitigating the decline in throughput volumes caused by the 2022 floods through strategic price adjustments. PON benefits from the newly implemented shadow regulatory pricing framework that allows it to increase the waterside component of its wharfage charge via a building block approach. This approach enables PON to earn a theoretical maximum allowable revenue on the channel service that it provides. This maximum is based on its asset base, providing an allowance for a return on capital, regulatory depreciation, recovery of opex and tax.
In addition, about 20% of PON’s revenue comes from long-term contracted lease agreements with either CPI or fixed percentage escalators. Market rent reviews are also applied periodically.
Extensive but Flexible Capex Plan – Infrastructure Development and Renewal: Midrange
PON has an extensive capital investment programme to diversify revenue away from coal. The plan includes more than AUD250 million of growth capex in 2025-2029. Liquidity and funding policies prioritise preservation of free cash flow over distribution to avoid over-reliance on debt to fund expansion projects and support stable metrics commensurate with a ‘BBB’ rating. It has no material contractual obligations and has high flexibility to defer expansion. Still, the assessment is limited to ‘Midrange’, as PON is under pressure to reduce reliance on coal in the longer term.
Refinancing Risk – Debt Structure: Midrange
All external debt is senior ranking and secured by assets on a pari passu basis. Lenders are protected by restrictive covenants. No debt-service reserve account is required under the debt documents, but PON’s treasury policies require a reserve equivalent to six months of debt service and opex. The reliance on bullet maturities and increasing pressure on lenders to stop funding coal assets expose PON to refinancing risk. However, we believe this risk is mitigated by a staggered debt-maturity profile, PON’s investments in diversifying its revenue base, and various funding sources and investors.
Financial Profile
Fitch’s base case incorporates minor stress on management’s projections for revenue, operating expenses and capex. It also applies a 1% premium to forecast borrowing costs, reflecting the newly implemented shadow regulatory pricing model and the updated treasury policy that prioritises free cash flow for reinvestment. This results in an average net debt/EBITDA of 3.5x over the next five years.
Under Fitch’s rating case, which reflects a reasonable downside scenario with reduced revenue, higher operating expenses and capex, and a 2% premium applied to forecast borrowing costs, the debt/EBITDA averages 3.8x.
PEER GROUP
The Port of Melbourne (PoM, Lonsdale Finance Pty Ltd, BBB/Stable) is the closest peer to PON. Both PoM and PON function as landlords for multiple ports, which reduces operational risk. PoM has a diverse throughput mix, while PON is significantly reliant on coal exports, which results in a ‘High-Midrange’ volume risk assessment as opposed to PoM’s ‘High-Stronger’ assessment. PON has a larger expansion plan to diversify revenue, leading to higher execution risk and financing pressure, reflecting the ‘Midrange’ assessment for infrastructure and renewal risk.
However, PoM has a rating-case five-year average net debt/EBITDA of 7.9x, higher than PON’s 3.8x. Still, the qualitative strengths of PoM on volume risk and infrastructure and renewal risk support a higher rating than PON.
We also compare PON to Newcastle Coal Infrastructure Group Pty Ltd (NCIG, senior secured rating: BBB/Stable). PON’s cargo is more diversified than NCIG’s, and it is in a stronger position in the supply chain with minimal competition. However, NCIG’s earlier planned repayment of senior debt compared that of peers mitigates its exposure to the thermal coal market and reduces its refinancing risk.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
The Outlook could be revised to Stable if:
– A sustained increase in the Fitch rating-case net debt/EBITDA above 6x;
– Material deviation from the new pricing framework;
– Significant increase in refinancing risk including on account of unsuccessful execution of the ongoing diversification plan.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
– The Fitch rating-case net debt/EBITDA dropping below 6x sustainably.
Sources of Information
The principal sources of information used in the analysis are described in the applicable criteria.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
PON has an ESG Relevance Score of ‘4’ for Management Strategy, as its bullet amortisation debt structure compounds the risk of limited refinancing options. This is due to increasing pressure on lenders to stop financing coal assets, similar to other ports that focus on coal. This has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors.
The highest level of ESG credit relevance is a score of ‘3’, unless otherwise disclosed in this section. A score of ‘3’ means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch’s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision.
Source: Fitch Ratings