TWE buys back $25.2m of water licenses linked to vineyards it was looking to sell

Treasury Wine Estates (TWE) has exercised its ‘call option’ to buy back 2,799 megalitres of high security water entitlements from Duxton Water at a value of $25.2 million. 

The announcement, published by Duxton Water to the ASX last week, is a continuation of the water license sale and leaseback agreement it entered into with TWE mid last year. The water licenses are directly associated with NSW vineyards that, at the time of entering the agreement, TWE had been looking to offload.

In addition to the 2,799 megalitres of high security water entitlements that has been bought back by TWE, the agreement also covers 1,971 megalitres of high reliability permanent water entitlements that, under the agreement, TWE will still have the rights to repurchase if it does not proceed with the sale of the vineyard associated to the entitlements. 

“The Company wishes to advise the sale agreement in connection with the Call Option has been executed,” said Duxton Water in its ASX post.

“D2O expects to receive approximately $25.2 million upon settlement of the transaction which is expected to occur in the coming weeks.”

The agreement between Duxton Water and TWE stipulates that, if sale agreements are not signed by 30 September or completed by 14 June 2024, TWE has the right to buy back the water entitlements at market price.

Duxton Water “expects to realise a significant accounting profit from this transaction” which it will disclose “more comprehensively in the Company’s FY2024 half-year financial report.”

These proceeds will be put towards Duxton Vineyard’s existing debts. 

“Upon settlement of the sale of these NSW water entitlements, proceeds from the sale are expected to be initially used to offset against the Company’s debt facilities,” read the ASX post.

“The Company then expects to use these funds to acquire additional water entitlements as well-priced acquisition opportunities present.”

Duxton Water is the only Australian-listed company that provides investors with a direct exposure to the domestic water market. The negotiations associated with water entitlements are expected to become bigger and more important news as climates warm and water rights remain limited. 

As it stands, tradable water entitlements for irrigation and environment are worth $25-$35 billion. This follows on from a 17% value increase of overall NSW water entitlements throughout the years of 2021 and 2022. To read more, read this report commissioned by the Natural Resources Access Regulator.