Transurban (TCL) has announced that it has won the bid for a 51 per cent equity stake in WestConnex (WCX) from the NSW Government for $9.3 billion.
TCL is part of a consortium Sydney Transport Partners – (STP) consisting of TCL (50pc), AustralianSuper (20.5pc), CPPIB (20.5pc) and Tawreed Investments (9.0pc, part of Abu Dhabi Investment Authority).
WCX includes a 33km of new or improved motorways linking Sydney’s fast-growing west and southwest suburbs with the central business district and to the airport and Port Botany.
To fund the deal, TCL is seeking to raise $4.2 billion through a fully underwritten accelerated pro-rata renounceable entitlement offer with retail entitlements trading, plus $600m through a placement to certain STP consortium members.
The entitlement offer will be a 10 for 57 with an offer price of $10.80 per new security.
This is a 10.4pc discount to TCL’s closing price of $12.06 on 30 August 2018 and a 8.9pc discount to TERP of $11.85.
TCL is now a global leader in road development, delivery, operations and technology company.
TCL is now a global leader in road development, delivery, operations and technology company. It operates a number of high quality toll roads.
It operates a number of high quality toll roads and its network effect gives it substantial advantages over competitors.
Outside of Australia, TCL is building a presence in the US and Canada.
Given the nature of the infrastructure assets and length of concessions, investors should have a longer term time frame with returns coming from income and some capital gains.
With the acquisition of WCX, this places TCL in a strong position with ongoing development opportunities on the back of TCL’s networks.
Outside of gaining concessions to the M4, M5 and M4-M5 link, WCX also provides further opportunities for TCL to connect to the proposed Western Harbour Tunnel, Sydney Gateway and F6 Extension projects from the NSW Government.
We consider the recent ACCC’s ruling in order for TCL to be able to bid for WCX a positive indication for future approvals for some of these other projects.
Importantly, the acquisition of WCX is effectively buying three major concessions in M4, M5 and M4-M5 link, with the construction profile materially progressed and ongoing strong cash flow generation.
Hence management are confident in providing FY19 and FY20 distribution guidance.
The project will be completed in three stages, with FY28 representing the first full financial year after construction of all planned stages and inclusion of the M5 West concession.
The WCX acquisition helps TCL double its lane kilometres in Sydney. Importantly, WCX helps improve TCL’s concession years remaining with the current Sydney asset base at 25.8 years vs. WCX at 42.5 years.
WCX tolls are distance-based with customers only paying tolls for the sections of tollway they use.
Calculations for the toll escalation is greater of CPI or 4pc per annum until 2040 and greater of CPI or 0pc thereafter (not including M5 West which escalates quarterly by CPI).
- This article does not take into account the investment objectives, financial situation or particular needs of any particular person. Accordingly, before acting on any advice contained in this article, you should assess whether it is appropriate in light of your own financial circumstances or contact your financial adviser. Christopher Hindmarsh is an adviser at JBWere Limited. JBWere Limited is owned by National Australia Bank Limited.