Investors are weighing whether to back mighty toll road operator Transurban in the sale of WestConnex or to bid against it in a rival independent group, ahead of the auction launch.
Sources told this news service that local and global investors are mulling both scenarios as they give feedback to the New South Wales government over the next fortnight, on how it should privatise the motorway.
IFM Investors, QIC, AMP Capital, Macquarie Infrastructure and Real Assets and Hastings Funds Management are all understood to be in discussions with overseas-based investors including APG, Canadian and Middle East sovereign wealth funds as reported.
Investment bankers meanwhile are waiting until consortia firm up before committing to a bidder, two sources said, although UBS has form advising Transurban on its successful tilt at Queensland Motorways (QML).
ASX-listed Transurban is expected to tap equity from partners, as it has done in QML, where it holds 62.5% of the operating company alongside AustralianSuper and Tawreed Investments.
Analysts said Transurban could stump up enough equity from shareholders and outside partners, and would have the headroom to borrow if it acquired the 51% stake the government has indicated it will sell.
WestConnex is costing AUD 16.8bn (EUR 11.3bn) to build on current estimates, and a buyer would likely use at least 50% debt, according to a Macquarie analyst, implying around AUD 4bn would be borrowed to acquire 51% of the project.
Since the motorway sale was announced in March, chatter surrounding a full blown privatization has surfaced, but the government has refused to confirm these reports.
NetFlow may also need to take on investment partners to buy out the whole of state-owned motorway group Sydney Motorways Corporation, the sources added, referring to the Plenary-Cintra tie-up which has emerged as a credible rival to Transurban.
The sources agreed the government would likely attract a third bidder besides the toll road groups, with IFM shaping up as the most likely lead, but they noted the field could quickly slim down if the government opts for a 100% sale.
Goldman Sachs has been appointed to run the sale on behalf of NSW, and earlier completed a scoping study aided by law firm Allens.
One of the analysts said the government had decided to sell the road before construction is fully complete because it wanted to extricate the controversial project from its balance sheet.
“The road has been a debacle from the government’s point of view. They are shifting some risk by selling it early,” he said. The private sector will take on the risk of the ramp up in traffic on new sections of the M4 and M5 motorways, as well as managing the construction on the connecting M4-M5 link.
But a banking source said the government could not dodge its responsibility for the inner west communities that are being impacted by the tunneling, vent stacks and surface road changes.
Activist groups have railed against NSW over what they describe as a litany of errors in the planning process and community consultation, along with botched land acquisitions and environmental approvals.