August 31, 2018 / 6:16 AM / 3 months ago

UPDATE 2-Australia's Transurban consortium buys control of record Sydney road project

* Transurban buys toll road for A$9.3 billion

* Announces A$4.2 billion equity raising to fund it

* Shares halted until Sep. 5 (Adds CEO comments on media call, adds background, analyst)

By Tom Westbrook and Paulina Duran

SYDNEY, Aug 31 (Reuters) - A consortium led by Transurban Group will buy a controlling stake in Sydney’s WestConnex toll-road project for A$9.3 billion ($6.7 billion), the company said on Friday, in the largest privatisation by sale in Australia.

The country’s No.1 toll-road operator said it would raise A$4.2 billion to pay for its part of the joint-purchase, which it won alongside the Canada Pension Plan Investment Board, Adu Dhabi sovereign wealth fund Tawreed Investments and local fund AustralianSuper.

The deal buys Transurban near total dominance of Sydney’s toll-road market and comes amid global investor enthusiasm for the reliable income stream flowing from Australian infrastructure.

The consortium will hold 51 percent of the unfinished project comprising a series of interconnected motorways and road upgrades, which the government had said would cost A$16 billion.

On Friday, Transurban valued the project at A$25 billion including drawn debt and the present value of A$5 billion in “remaining” capital expenditures, making it the largest urban road project under way in Australia.

The New South Wales (NSW) state government will keep the remaining 49 percent stake but the company keeps the project’s usage risk and any future cost blow-outs, Transurban Chief Executive Officer Scott Charlton told reporters.

“We take a long-term view of expanding the network and we take that into account,” he said in a media conference call.

“If it doesn’t actually happen in the way that is being planned now or the time is a little bit different ... (that) is not really a material number to us.”

Transurban, which controls 15 out of 19 toll-road concessions in the country, will issue new shares at A$10.80 to fund the purchase, a 10.4 percent discount to its Thursday closing price. The rest of the funding will come from debt and contributions from consortium partners.

Its shares are halted until Sept. 5 for the bookbuild.

“The raising will result in prima facie 20 percent dilution to free cashflow per share on the basis that WestConnex is not currently generating free cashflow,” UBS analyst Simon Mitchell wrote in a note to clients.

Transurban expects the first full year of operation will be 2028.

The NSW government will use the sale proceeds to fund the remainder of Westconnex construction and also for other projects such as schools and hospitals, NSW Treasurer Dominic Perrottet said in a statement.

Australia’s most populous state is expected to run a fiscal deficit until at least 2020, despite the proceeds from several recent asset sales, including the sale last year of its A$16.2 billion electricity grid to pension funds.

Transurban’s bid was cleared by Australia’s competition regulator on Thursday despite initial concerns about the firm’s dominance of Sydney toll roads.

$1 = 1.3768 Australian dollars Reporting by Tom Westbrook and Paulina Duran in SYDNEY; Editing by Stephen Coates

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