Crunch time for Australian wheat exporter AWB Ltd will come in two weeks, with a government decision on the future of the company's export monopoly expected at the same time as its first-half results.
A group of state farmer associations this week called for AWB's export subsidiary AWB International to be allowed to run the monopoly on a not-for-profit basis after a de-merger from its parent. The government has been considering Australia's wheat export arrangements since suspending AWB's monopoly last December, after an inquiry found the group had broken United Nations sanctions by paying $222 million in kickbacks to the regime of Saddam Hussein.
"We want clarity," said analyst Belinda Moore of ABN Amro Morgan said, pointing to the difficulty of valuing AWB, formerly the Australian Wheat Board. Wheat industry leaders expect Australian Prime Minister John Howard to announce changes to the export system in the week starting May 21, after the government said it would consider farmers' latest proposals for a fortnight.
The timing of the announcement, possibly on May 22 according to political and industry sources, means the company is unlikely to be able to offer firm guidance on its future prospects when it releases results on May 23.
AWB has operated the "single desk" export monopoly for 67 years, and it was once its sole reason for existence. In recent years AWB has diversified, primarily with the$825 million ($682 million) acquisition of the Landmark rural services business in 2003.
But the monopoly underpins AWB's operations in pool management, grain acquisition and trading and financial services. The cost to AWB of losing the monopoly would depend on the structure of such a move, Moore said. AWB has said in the past that the monopoly directly accounts for about 20 percent of its annual earnings, as well as underpinning much of its business.
However, valuations are complicated by a "break fee" which AWB International, which operates the monopoly, would have to pay to AWB if the government decided to split the international arm from the listed company.