Transurban weighs toll road bid

Transurban and its advisers were in lockdown over the weekend as they mulled an offer for Sydney’s $16bn WestConnex project.

A tunnel in the WestConnex project.

The consortium spearheaded by toll road giant Transurban is weighing up an offer for Sydney’s $16 billion WestConnex motorway project, pitting it against a rival bid led by infrastructure heavyweight IFM Investors.

Transurban and its advisers were in lockdown over the weekend as they mulled submitting a conditional bid to the NSW government by today’s deadline. The competition watchdog sparked a scramble on Thursday after telling Transurban it needed a further seven weeks to make a ruling on its bid.

That left Australia’s largest toll road operator without the critical green light from the regulator and at a major disadvantage against the IFM group, which faces fewer competition hurdles given it holds less exposure to toll road investments. Transurban currently runs seven of the state’s nine toll road concessions and 15 of 19 toll road concessions in Australia.

The Australian Competition & Consumer Commission said with that level of dominance in the major growth markets of Sydney and Melbourne, it was justified in seeking more time to consider “arguably the most significant” toll road transaction in Australia “in the foreseeable future”.

While some in the market expected the government to put back the July 23 deadline to reflect the ACCC delay, Treasu rer Dominic Perrottet said on Friday the original timeline would be maintained.

The government would work with all bidders “about the nature of their bids and will evaluate conditional bids as on previous transactions,” Mr Perrottet said.

All bids must receive regulatory approval from the ACCC and the Foreign Investment Review Board.

Transurban’s partners are AustralianSuper, the Canada Pension Plan Investment Board and the Abu Dhabi Investment Authority sovereign wealth fund.

IFM’s partners include the Canadian pension fund OMERS and Dutch fund APG.

Government sources have previously predicted a return of more than $5bn from the 51 per cent stake in the project’s holding company Sydney Motorway Corporation.

Transurban was in a weakened position to launch its bid for WestConnex and at risk of missing out altogether after the ACCC’s delay in delivering its verdict, UBS analysts warned.

“We are also concerned more broadly by the ACCC’s focus on changing its market definition and how this could constrain Transurban’s growth potential in Australia and divert the company to pursuing lower return growth opportunities in offshore markets,” UBS analyst Simon Mitchell said.

On the flip side, there may be relief among investors should it not be required to launch an equity raising of up to $2bn.

While the majority owner of Sydney Motorway will only be allowed to lift the price of the toll roads at the level of inflation, some say Transurban’s dominance may give the company an unfair advantage in state toll road project auctions in future. Transurban has previously argued it has no pricing power as this is controlled by the state government.