The S&P/ASX 200 Index (ASX: XJO) stock APA Group (ASX: APA) has dropped today after revealing a painful $145 million writedown. APA is currently down 0.69% at $7.90, while the ASX 200 is up 0.13%.
APA is an energy infrastructure business that owns and operates a large network of gas pipelines around Australia. It also has energy generation assets including solar, wind and gas, plus electricity transmission assets.
Impairment of APA's Sydney ethane pipeline
APA announced today that it expected to recognise a non-cash impairment of approximately $145 million, before tax, to the Moomba Sydney ethane pipeline (MSEP).
This impairment would result in a full write-down of the MSEP's current book/balance sheet value. APA intends to include this accounting charge in its financial statements for the year ended 30 June 2024, being FY24. However, the result is still subject to finalisation upon completion of the auditor's review process.
APA noted the impairment was "non-cash", representing approximately 1% of its market capitalisation, and had no impact on its liquidity. It also affirmed there was no change to APA's FY24 distribution guidance or its FY24 underlying earnings before interest, tax, depreciation and amortisation (EBITDA) guidance.
The ASX 200 stock expects to pay an FY24 annual distribution of 56 cents per security and generate underlying EBITDA of between $1.87 billion and $1.91 billion.
Why is the asset being impaired?
The MSEP is a 'single user' pipeline, which was used to transport ethane to plastics manufacturer Qenos Pty Ltd. This company recently entered into voluntary administration and has announced that it does not expect to restart its manufacturing facility.
APA noted that Qenos is the only likely customer with demand for ethane to be transported along the MSEP. The MSEP is the ASX 200 stock's only asset that transports ethane and APA's only long-distance single-user pipeline.
Could the pipeline be used for something else?
The energy infrastructure business said a range of potential alternative uses for the MSEP were being assessed, including the possible conversion of the asset to transport and store natural gas, to service the growing demand for capacity on APA's east coast gas grid.
However, APA warned it would take some time to fully assess the potential alternative uses of the MSEP.
APA pointed out that accounting standards required an assessment of the asset's carrying value to be finalised before completing the FY24 accounts. So, the company has taken a conservative approach and assumed the pipeline will not be utilised for the foreseeable future. Therefore, it expects to impair the asset's full balance sheet value.
APA share price snapshot
Since the start of 2024, the APA share price has fallen 7.3%, and the ASX 200 has risen 1.5%.
