Infratil rates its chances of buying half of Shell's downstream assets as "likely" and says that a deal would not require capital raising or more asset sales.
The company and the NZ Superannuation Fund are in the final stages of negotiating to buy Shell's stake in the Marsden Pt refinery, its chain of service stations and other parts of its business.
Infratil's chief executive Marko Bogoievski said the outcome would be known within several weeks.
"It's really hard to tell, any one issue could tip it over. At the moment I think it's more likely than not to get done but until you work through it there's not a lot to be gained through making predictions like that."
Infratil released its six-month result yesterday, a loss of $31.4 million due to the impact of asset impairment and revaluation of financial instruments, and detailed a renewed drive into the Australian energy sector.
The company will seek a listing on the Australian Stock Exchange in a bid to increase its appeal to institutional investors across the Tasman.
Bogoievski told a briefing he could not give details about price or cash flow projections for Shell given the state of negotiations. However, the company was confident it could buy Shell's 17.1 per cent stake in NZ Refining for less than market value. Refineries around the world have been hit by slashed margins due to a glut of refining capacity.
Market speculation puts Shell's assets on sale at between $700 million to $1 billion although with Exxon-Mobil's assets also on the block, it is seen as a buyer's market.
Infratil has undrawn bank facilities of $261 million and $119 million on deposit.
The response to Infratil's announcement that it was a preferred joint bidder last month had been negative, given early signs it would have to raise capital or sell assets in addition to Luebeck Airport in Germany and its stake in Auckland Airport, which realised $152 million after the September 30 balance date.
Bogoievski said that although Infratil was a long-term investor, for all its investments it had an exit strategy which in this case could include listing its share of Shell.
"At the right time if Infratil saw a valuation opportunity and an alternative for capital then clearly we would exit. The most obvious exit in that scenario would be a public offering."
He said Shell met one of Infratil's key investment criteria - being in a sector going through change - with the "unusual dynamic" of two oil majors wanting to quit downstream assets at the same time.
There would be some capital spending among the 229 service stations but this would be modest and aimed at improving the lucrative grocery and retail parts of the businesses.
Infratil was positioning itself as a bigger player in the Australian energy business with A$120 million to be invested in West Australia's Kwinana power station and a medium term target of doubling to 800,000 the number of Infratil Energy Australia customers.
Australia was in the process of deregulating its energy sector, incumbents had not been challenged in the retail scene and large infrastructure players were still wounded by the global financial meltdown.
"Quite a lot of change is likely to occur. That's going to create opportunities for well prepared private investors," said Bogoievski.
For the six months to September 30 Infratil's operating surplus was $70.4 million, compared to $67 million a year earlier. The earnings outlook for the 2009/10 financial year was slightly lower than indicated six months ago, while still forecast to be higher than in 2008/9.
During the six months negative impacts of gas prices in Australia, a bus drivers' dispute in Auckland combined with weak passenger numbers and its underperforming airports in Europe had offset the improving underlying performance of Wellington Airport, TrustPower and Infratil Energy Australia.
Infratil closed down 3c at $1.51.
PIE FANS WOOED
Infratil chief executive Marko Bogoievski reached deep into the Kiwi psyche by playing on the nation's love of pies when discussing prospects for buying into Shell service stations.
"For any meat pie fans we want you to buy yours from Shell New Zealand in the future if this deal gets done," he said.
New Zealanders eat an estimated 70 million pies a year, many following a gas station stop.
Emphasising local ownership would be part of a marketing strategy if the deal - in conjunction with the NZ Super Fund - goes through. "I think there's ground there for someone to capture the non-major space."
Bogoievski doesn't rate himself any sort of forecourt pie expert but said he had recently been introduced to a chicken tandoori pie, unfortunately sold through a rival chain.