Transurban may have to partner on WestConnex

07 February 2017 - 12:00 am UTC

Australian toll road operator, Transurban, says it may have to seek partners to bid for Sydney’s giant WestConnex motorway project if it comes up for sale and claims obvious advantages over competitors.

At its 2017 half year results on Tuesday (7 February) chief executive Scott Charlton placed WestConnex at the top of an AUD 9bn (USD 6.9bn) wishlist of projects it is interested in Sydney, Melbourne and Brisbane.

He said the AUD 16.8bn project could bring it more competition in Australia if it attracts other global players, but he argued Transurban is one of the best placed to deal with the construction and traffic forecast risks.

“There is always competition – we competed against others in [bids for Queensland Motorways] and Cross City Tunnel – but we believe we have the opportunity to put the most value on the table. But it does depend on how the government wants to sell it. It might involve us having partners depending on how they want to sell it,” he told analysts.

Big infrastructure investors have told InfraAsia they would prefer if they could buy the whole project in one go, rather than have it offered to the market in stages, as market speculation has envisaged. This is because the performance of the three stages of the project will influence each other. Buying the whole thing would ensure control of the total risks of the road and provide complete control over tolls.

Advisers and analysts have said the main headache for the NSW government as it moves to sell off the project is finding a viable competitor to Transurban. The company has lost only one bid in the past four years – for the new I66 toll road being built in Virginia in the US.

Charlton said on Tuesday the price paid by the winner of I66 was well above Transurban’s offer and suggested it may have been too high. He didn’t name any specific opportunities in the North America, but said the company could see potential for new roads to ease congestion in numerous cities. However, he ruled out speculation Transurban is bidding on Macquarie Group’s 50% stake in the Dulles Greenway road in Virginia.

On WestConnex he said: “we don’t know what the [NSW] government is going to sell, but in terms of the construction risk, we have hundreds of people in that development construction area, we do this all the time,” he said.

He added Transurban has one of the best traffic forecasting teams in the world – only matched by other large toll road operators – with a limited supply of “independent” forecasters for others to draw on.

“I think there are some other firms globally who are like us, operators. The governments have some good forecasters, but the independents don’t have the resources that owner operators have,” he said.

“Independent firms have left the business because of the problems and liability with forecasting – they could be good, but we are really good.”

The company reported a 26.4% rise in net profit to AUD 67m for the six months to 31 December on revenue that rose by almost exactly the same proportion by 26.3% to AUD 1.3bn.

In its so-called “proportional results”, which remove one-off items in the year, saw earnings before interest, tax, depreciation and amortisation rise by 12.1% to AUD 817m on a 10.4% rise in revenue to AUD 1.1bn.

The company is in the final stages of getting approval for another big project – the AUD 5.5bn Western Distributor – in Melbourne.

Transurban has asked for a 10-year extension to 2044 of its concession on the existing CityLink motorway to partly pay for the Western Distrubutor. But the state Opposition and minor parties are threatening to block this in the upper house, as reported.

Charlton insisted he expects that to be approved, with an equity raising likely needed and financial close by the end of 2017. Asked if the company had alternative funding sources if the extension is not approved, he pointed to several possibilities including further debt raisings, a tripling of truck tolls due to improvements on CityLink to Melbourne Airport and “some out performance of the business as usual” which is raising free cash flow levels.