It’s not just fund managers, brokers and bankers taking a keen interest in fuel retailer Viva Energy’s mooted sharemarket listing.

Supermarkets giant Woolworths is believed to be watching closely as it assesses the merits of an initial public offering for its own petrol business in a deal that could be worth $1.5 billion to $2 billion.

Street Talk understands an IPO is a top of the list of three courses of action for Woolworths, which is mulling options after BP walked away from its $1.785 billion bid for the unit a fortnight ago.

An IPO would offer Woolworths a clean exit from the business at a time when it has prepared staff and other key stakeholders for a sale and has done plenty of work on how it could be extracted from the wider Woolworths group.

Woolworths has experience pursuing such deals. It spun off property arm Shopping Centres Australasia Property Group in November 2012, handing shares to existing investors and raising fresh funds at a time when the market was all but closed to new listings.

Of course the IPO market has improved greatly since then, and fuel retailer Viva Energy serves as the perfect litmus test for a Woolworths petrol IPO.

While Viva Energy is a vertically integrated fuel business with everything from a refiner to service stations, a big part of its offering is a retail fuel network under its exclusive rights to the Shell brand in Australia.

It would serve as a useful comparable to Woolworths petrol and, should its float get away as expected, prove listed equity markets are open to another fuel retailer on the ASX-boards.

An IPO is not Woolworths’ only option. The company said a fortnight ago it would continue “to engage actively with alternative options for its petrol business”, and analysts reckon those options include retaining the business or finding another buyer.

Fund managers reckon Woolworths is unlikely to retain the unit, given it has gone as far as it has down the sale path. While the business is not under the same pressure as it was when it signed off on the BP deal in late 2016, there are a lot of things Woolworths could do with an extra $1.5 billion as one investor put it.

The other option is to re-engage with underbidders and other parties that knocked around the petrol stations earlier this year, when BP was considering hiving off a big chunk of the sites to pass muster with the competition regulator. While BP is understood to have found interested parties for parts of the business, it is expected to be harder to find a buyer for the whole.

Extracted from Australian Financial Review