Meetings fuel speculation on Transurban approval for WestConnex

A tunnel in the WestConnex project

Investment bank Morgan Stanley has started scheduling meetings with infrastructure investors that hold shares in its client Transurban, fuelling suggestions that the toll road operator may have won regulatory clearance to buy a $5 billion-plus stake in Sydney’s WestConnex.

Infrastructure investors that have shares in Transurban say Morgan Stanley’s equity capital markets bankers have asked for meetings tomorrow morning, but have not specified what the meetings relate to and what company is involved.

The Australian Competition and Consumer and Consumer Commission is due tomorrow to release its findings on Transurban’s bid for a 51 per cent stake in Sydney Motorway Corporation, which owns the three-stage WestConnex Sydney toll road project.

The ACCC was investigating Transurban’s bid because of competition concerns.

It is expected the New South Wales government will either announce which consortium has won the WestConnex competition as the ACCC releases its finding, or wait another day.

Final bids for the toll road business were due last month with two consortiums — one headed by Transurban and another by IFM — the last left in the final stages of the contest.

Transurban (TCL) is working with UBS and Morgan Stanley on its bid for WestConnex.

Because the state is waiting for the ACCC outcome on Transurban’s bid — one that is conditional on regulatory approval — it has prompted the market to speculate that the toll road operator has offered a far higher price than the IFM consortium.

The Australian’s DataRoom reported on August 3 that Transurban was expected to raise between $2bn and $3bn.

But many now believe the amount will be closer to $3bn or possibly more, with the anticipation that Transurban will offer a staggering price for the 33km, predominantly underground, motorway project.

Macquarie Capital is also believed to be working with the group in the event of an equity raising.

Sydney Motorway Corporation is understood to have an enterprise value of $20bn, with about $10bn worth of debt.

It means that the buyers of the stake on offer would likely pay at least $5bn in equity for the 51 per cent interest.

However, much of what cash is paid upfront depends on how much construction debt is allocated to stage three of the project, which is yet to be completed.

IFM is working with OMERs and Dutch fund APG and has Citi and Bank of America Merrill Lynch as its advisers.

Goldman Sachs is working for the state government.

What is keenly awaited to see in terms of the ACCC is whether Transurban is offered full approval to buy WestConnex, or an approval based on conditions.

Its share in the consortium is currently thought to be about 50 per cent but that may need to be reduced.