Transurban CEO warns on risk of pricey infrastructure assets

Transurban chief executive Scott Charlton has warned of the dangers of financial buyers overpaying for infrastructure.

Transurban chief Scott Charlton in the company’s Melbourne office. (Stuart McEvoy/The Australian)

Transurban chief executive Scott Charlton has warned of the dangers of financial buyers overpaying for infrastructure assets by making the same unrealistic assumptions on traffic and gearing levels that led to the collapse of a range of toll road projects in the aftermath to the Global Financial Crisis.

Addressing the company’s investor day in Sydney, Mr Charlton questioned whether the current heady appetite for infrastructure assets from financial advisers and asset managers globally was leading to unnecessary risk taking.

Prices in the unlisted and listed infrastructure sectors has become bullish in recent years due to low interest rates globally.

Transurban (TCL) currently has $9 billion of projects in Australia under development and remains on the lookout for new opportunities, but Mr Charlton stressed it would remain disciplined in paying for new assets.

Mr Charlton stressed that excessive leverage had yet to creep back into bidding for toll road assets, but he was wary it had returned to other infrastructure assets.

“We are again seeing sub-debt products and ways to find more leverage,” he said.

“Given it is starting to occur in other sectors it may not be too long before it returns to the toll road sector.”

“Can we be competitive? Absolutely, if people use reasonable assumptions. We can’t be competitive if you use unrealistic assumptions on traffic and leverage,” he said.

One-third of Transurban’s toll-road portfolio was purchased in the aftermath of the Global Financial Crisis as a range of toll road and road tunnel assets fell into receivership after failing to generate enough traffic to pay back the cost of construction.

They included Brisbane’s Clem Jones and Airport Link Tunnels, as well as the Lane Cove and Cross City Tunnels in Sydney.

“We will remain disciplined. We are long term patient investors,” Mr Charlton said, stressing the company was not reliant on merger and acquisition activity for growth.

Transurban operates the maj­ority of toll roads in Australia, with the greatest concentration of assets in Sydney and Brisbane, in addition to Melbourne’s ­City­Link.

It is also proposing to build the $5.5 billion Western Distributor motorway in Melbourne and is a key partner in Sydney’s $2.9bn NorthConnex project linking the Pacific Motorway to the M2 in the city’s north.

Transurban is also eyeing more road projects in the US.