Queensland Motorways may fetch bids as high as $6.3 billion, putting the valuation for the 70-kilometre road and bridge network in the Brisbane area on a par with the auctions of the Botany, Brisbane and Kembla ports, reporting by Data Room has discovered.
Those three ports all sold last year for as much as 25 times 2013 earnings before interest, tax, depreciation and amortisation, a very high valuation for infrastructure. Final bids are due April 22 in an auction managed by Macquarie and UBS.
Investors are attracted to Queensland Motorways’ perceived long-term stable cash flow that will improve with network upgrades and some cost cutting. South East Queensland’s population was at 3.2 million as of 2011 and has grown by 2.5 per cent a year between 2001 and 2011, according to the Australian government.
Two groups of bidders may be willing to pay between $6.2bn and $6.3bn for Queensland Motorways, accepting an internal rates of return of about 9 per cent.
One led by Melbourne-based IFM and includes Canadian infrastructure investor Borealis and Singapore sovereign wealth fund GIC. The second group is led by Melbourne-based Hastings and includes Spanish infrastructure operator and investor Abertis, the Kuwait Investment Authority and Dutch pension fund APG.
These two groups may be able to pay more than a third rival, which includes ASX listed toll road operator Transurban, superannuation fund AustralianSuper and a unit of Abu Dhabi’s sovereign wealth fund Tawreed Investments.
The IFM and Hastings-led groups are not subject to public shareholder pressures and some of its members enjoy tax advantages as sovereign wealth funds and non-Australian pension funds.
Transurban’s internal rate of return is currently 9.3 per cent, says Bank of America Merrill Lynch. The company may be reluctant to be part of a group that bids $6bn or more for Queensland Motorways because it would lower its IRR below 9.3 per cent, according to Merrill.
In the 12 months to June 30, 2013, Queensland Motorways EBITDA was $245 million, according to accounts lodged with the Australian Securities and Investments Commission. Merrill estimates Queensland Motorways’ enterprise value at $6 billion.
Transurban has expressed a desire to be the biggest equity holder among its partners in Queensland Motorways. If the Transurban-led group wins the auction, Transurban may have to raise between $1bn to $2bn in a share sale, analysts estimate.
A group of Malaysian investors consisting of UEM, the country’s sovereign wealth fund Khazanah and the nation’s Provident Employees Fund are also expected to bid for Queensland Motorways.
Analysts at Macquarie and Merrill expect no more than 60 per cent of the total purchase price for Queensland Motorways to be financed with debt and the remainder funded with equity.
Morgan Stanley and Goldman Sachs are advising the Transurban group and would help arrange any financing package. Rothschild is advising the IFM-led group. J.P. Morgan and RBC are advising and would help arrange financing for the Hastings-led group. Deutsche Bank and CIMB are advising and would help arrange financing of the Malaysian bidders.
(Reporting by Brett.Cole@businessspectator.com.au
Editing by Victoria.Thieberger@businessspectator.com.au )