Transurban chief warns on lack of bipartisanship on infrastructure

Scott Charlton says a lack of political bipartisanship around infrastructure development could ultimately hurt the economy.

Transurban CEO Scott Charlton. Picture: Stuart McEvoy.

Transurban chief executive Scott Charlton has said a lack of political bipartisanship around infrastructure development and federal government intervention in several key projects has made global investors “nervous” about investing in the Australian market.

Speaking after Transurban said its annual net profit rose to $209 million and it raised distribution guidance for the year ahead by a lower than expected 8.7 per cent, Mr Charlton said he feared increased sovereign risk around infrastructure development could hurt the economy.

“There is a combination of a lack of bipartisan support around infrastructure, that is, projects that have been cancelled. And government intervention in certain ­markets. That makes global investors nervous. It does concern us and we need to talk about it,’’ he told The Australian yesterday.

“We have a lot of domestic ­support (for new developments) through our own security holders. But it means some of that (offshore) investment will be directed elsewhere or there will be higher costs of capital to deal with some of these risks that weren’t talked about two to three years ago in this country, which could hurt the economy.’’

His comments come after ­Infrastructure NSW chairman Graham Bradley and Infrastructure Victoria chairman Jim Miller last week said it was unnecessary for the federal government to be an equity investor in big, risky ­projects to encourage private ­sector support. The May federal budget included infrastructure commitments of $8.4 billion to the Melbourne-to-Brisbane inland rail project and $5.3bn for the Western Sydney Airport at Badgerys Creek, both of which will be treated as equity investments.

The government has argued that concessional loans and equity injections provide “better bang for the buck’’ for taxpayers than ­traditional state grants. Ms Charlton was commenting after he defended the company’s distribution guidance for the year ahead, noting it was going through a “heavy period of development’’ as investors sent its shares 3 per cent lower in morning trading before they closed 2 per cent lower at $11.72.

Transurban said it was looking at paying security holders 56c a share in the 2018 financial year, which would be 8.7 per cent up on the 51.5c payment for fiscal 2017 but below consensus forecasts of 56.7c. “We are going through a heavy period of development,’’ Mr Charlton said, pointing to Transurban’s $9bn development pipeline that the company confirmed today was on time and on budget.

“The board is saying they are comfortable with the 56c distribution ... With a lot of activity on the network.’’ He declined to describe the forecast as conservative.

RBC Capital Markets said Transurban had a history of upgrading distributions throughout the year so read little into the guidance. The broker also noted that management’s long-term incentives for 2018 would be assessed with a target growth rate of 8-10 per cent for fiscal 2018 (versus 9-12 per cent for 2017) against the 51.5c distribution in 2017.

Macquarie analysts said company’s distribution projection came in slightly above its forecast and pitched the toll-road operators shares as more than just a “yield play’’.

Some analysts say the company will struggle to keep lifting payouts as spending commitments rise, including when fin­ancial close is reached on the West Gate Tunnel in Melbourne. Transurban said increased revenue from its toll roads helped drive a steep rise in annual profit, as it continues to weigh a possible bid for control of the WestConnex project in Sydney.

Proportional toll revenue — the company’s preferred measure of the performance of its roads — rose by 11 per cent to $2.15bn in the fiscal year.

Toll revenues on Transurban’s roads in Sydney rose 9.2 per cent, while revenues in Melbourne rose 4.1 per cent.

Additional reporting: The Wall Street Journal