ConnectEast slips into takeover lane

Ending a trading halt of almost a week, ConnectEast, operator of EastLink, said it would look to scale back its current net debt position from $1.79 billion to $1.43 billion through the fund raising.

Up to $207million of the 55 shares will be offered to institutional shareholders and $138million to retail investors. ConnectEast shares last traded at 67.5 before the trading halt.

It will also cut its dividend to 2 a year to appease the underwriters of the deal. Gearing will be reduced from 45 per cent to 33-34 per cent.

Macquarie Capital Advisors and UBS have underwritten the deal to $400 million.

ConnectEast chief financial officer Danny Agnoletto, who last week tendered his resignation, said the reduced distributions would continue until at least March 31, 2010.

After that, "we intend to align the distributions with operating cash flows", he said.

ConnectEast managing director John Gardiner said the refinancing was a result of deteriorating capital markets rather than EastLink's deteriorating traffic figures. An average of November traffic so far shows EastLink is attracting only 137,000 trips a day, down from October's average and much lower than the forecast 225,000 for this period.

"The measures that ConnectEast is taking, I believe, show a proactive and prudent approach to ongoing uncertainty in global capital markets," Mr Gardiner said.

He dismissed speculation that rival toll-road operator Transurban might be keen to pounce on the less debt-laden company, saying there had been no discussions.

"I hope it is a more attractive business overall, whether that is for a takeover or for a strong forward future for ConnectEast," he said.

CommSec infrastructure analyst Paul Johnston said he expected the treatment of ConnectEast's share price today to be "ugly", but the company had created "a much rosier future" for itself.

"It is taking so much of the risk away from ConnectEast. The refinancing risk is halved, the capital structure and equity lock-up risk is gone completely," he said.

He said he believed the likelihood of the two companies coming together had increased.