UPDATED: Transurban loses interest in Maryland Managed Lanes deal

29 April 2019 - 12:00 am UTC

Transurban has decided it won’t bid for the USD 7.6bn first stage of the I-495/I-270 Managed Lanes project in the US as political opposition to the PPP mounts.

This story was updated to provide additional details on other US road projects Transurban was looking at as part of its annual investor presentation.

The President of Transurban’s North America business, Jennifer Aument, told an investor briefing in Sydney today (29 April) that it will “pass” on the managed lanes projects, which join roads operated by Transurban at the border with Virginia. Maryland and Virginia surround Washington D.C.

“Maryland, our neighbour, is a great market [and has] a potentially great project, but Transurban has decided to take a pass on that first segment of the expressways,” she said at the company’s annual investor day.

“That project has a complex political and economic path ahead, so that means a lot of risk and a lot or years before it can deliver toll revenue.”

At its 2019 half-year results briefing in February, Transurban Chief Executive Scott Charlton had said the company was still interested in the project but noted it had been delayed.

Transurban, along with many others, lodged an expression of interest in December 2017. But since then the project has faced mounting political opposition, including legislation proposing to ban tolls. However, a request for qualification was scheduled for early May.

Though it will not move forward with bidding for the managed lanes project, Transurban remains committed to several other highway expansion projects in the region. The company is currently in the planning phase of the I-495 Northern Extension project in Virginia which will extend the highway 2.3km to Maryland’s Border and build new connections to major commuter routes. 

WestConnex debt to go on balance sheet

Meanwhile, the company confirmed it will raise more debt for its biggest project – the AUD 16.8bn WestConnex motorway in Sydney – as traffic becomes clearer on each of its six projects, with much of it shifting from project to corporate level debt.

Chief Financial Officer Adam Watson said that, like its other road projects, it would progressively load more debt onto the 33km motorway network as each of its stages “matures” and traffic ramps up so it could return capital to shareholders of the ASX-listed company.

When the Sydney Transport Partners consortium that includes Transurban won the auction to buy 51% of the road project in August last year with a AUD 9.3bn bid, it raised AUD 4.2bn in new equity from shareholders to finance the acquisition.

Between October and December, it refinanced about AUD 4.6bn of debt on WestConnex stage one and to finance the construction of the M4-M5 Link, a greenfield part of WestConnex.

“WestConnex will be able to raise additional debt and the proceeds can be redistributed to investors,” Watson told analysts and investors at the briefing. “Capital releases from WestConnex will be available when the cashflows develop.”

“All of its debt facilities are already in place. The story will be as the assets come online [and] mature, [we will be] corporatising the funding structure with WestConnex [and] that asset level debt will get refinanced into corporate debt markets.”

Much of the acquisition of WestConnex was made with equity as significant parts of it are still being built, but more banks and bond market investors will be prepared to finance it at cheaper rates and longer tenors once construction completes and toll revenue becomes more certain.

The company again flagged that its focus was now mainly on nine projects it is building in Australia and the US, but reiterated it is eyeing three further road projects that will link into WestConnex, one of which may be an investment opportunity, as well as any sale of the rest of WestConnex.

These are the Western Harbour Tunnel (WHT), the first stage of the F6 motorway and the Sydney Gateway motorway to go to Sydney Airport and Port Botany.

The NSW government has already said it will fully fund Sydney Gateway and the first stage of F6. Citi and EY are now advising the government on a scoping study into the procurement of Western Harbour Tunnel.

WestConnex CEO Andrew Head said that even if Transurban doesn’t bid for the Western Harbour Tunnel, it is in its interest to see it and the other two projects go ahead as they will feed additional traffic into WestConnex.

“WHT is currently going through a scoping study by Citi and EY [and] we would expect news on that this year,” he said.

“[On] the Gateway project to Sydney Airport, the Sydney Airports Corporation and the NSW government are developing an [environmental impact statement]. The F6, known as the ‘F6 short’, will be a tunnel from Arncliffe to Kogarah. We can expect to see some news on that project soon as well,” Head added. In February, the government’s Roads and Maritime Authority called for pre-registration of D&C contractors to design and build the F6.

In addition, Sydney Transport Partners will have first rights to bid for the remaining 49% of WestConnex should the government decide to sell it.


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