Transurban makes bid for Cross City
Transurban is hopeful of buying Sydney's failed Cross City Tunnel within the coming months for a total outlay of about $500 million, in a deal that will cement its position as the city's toll-road king.
Australia's largest toll-road operator has also declared interest in buying Queensland Motorways, which operates five tollways in Brisbane, should its owner decide to push ahead with a sale.
Transurban made a pre-emptive strike on Monday in its attempt to buy the Cross City Tunnel by purchasing debt in the asset for $475 million from its sole senior secured creditor, Royal Bank of Scotland.
Built for about $1 billion, Cross City Tunnel has attracted only a fraction of the predicted traffic.
Transurban had previously made clear its interest in buying the 2.1-kilometre tunnel, which would fit well with its other toll-roads in Sydney such as the M2, M5, M7, the Eastern Distributor and the Lane Cove Tunnel.
The Cross City Tunnel, which was placed in receivership in September for the second time in eight years, runs under Sydney's central business district and is linked to the Eastern Distributor.
Transurban boss Scott Charlton said the company hoped to buy the tunnel for $500 million, including stamp duty. This is a price we think represents value for the Transurban shareholders," he said.
He emphasised the synergies Transurban could realise by operating both the Eastern Distributor and the Cross City Tunnel, as well as the other roads in its Sydney network.
Even if a higher bid emerges, he said Transurban would still make a material profit on the purchase of the tunnel's debt. He expects the purchase of the debt to be completed by December, and is hopeful for receivers to finish the sale of the tunnel by February or March.
Transurban expects the tunnel to generate "very moderate growth" over the long term, and would continue to toll motorists.
Analysts said it was unlikely a higher bid would emerge.
Macquarie Equities analyst Ian Myles said Transurban was buying the tunnel for a "great price" by removing the likelihood of competitive tension emerging from other bidders. But he said the tunnel was "not a must-have in their portfolio", and agreed that growth in traffic would be modest.
"The east doesn't go west. Until you get those in the eastern suburbs to go to more than the fish markets, the tunnel's growth has got some constraints," he said.
Transurban will make a further payment to Royal Bank of Scotland of up to $27.5 million over four years in the event that the tunnel's traffic is better than its own best assumptions.
The deal has not altered Transurban's guidance for this financial year of 34¢ a share.