Expectations are mounting that WestConnex owner Sydney Motorway Corporation will test market interest in an initial public offering as part of a dual-track sale process run by investment banks Citi and Royal Bank of Canada.
While the NSW government is yet to determine whether to offload the remaining 49 per cent interest in Sydney Motorway Corporation that it continues to own, most believe a sale is on the cards and a float will at least be considered.
Many expect that infrastructure buyers will be reluctant to compete against existing part-owner Transurban in an auction for the asset.
RBC and Citi are still working on a scoping study for WestConnex to determine the best path for the state, in terms of whether to sell or retain the asset, with all options still on the table.
Discussions are currently under way to gauge market feedback.
A report is due to be handed to the state government by the end of the year.
Most believe that Transurban is the logical buyer if the 49 per cent interest is placed on the block, given that a Transurban-led consortium acquired the other 51 per cent for $9.26bn in 2018.
Creating competitive tension in an auction could be challenging, given that Transurban already owns stakes in almost all of Sydney’s toll roads. Stages one and two of the $16.8bn WestConnex roading project have been completed.
The third stage, which is the link to the M4 and M5 motorways between Haberfield, Rozelle and St Peters via a 9.2km tunnel, is expected to be finished in 2023.
One challenge with a float of the asset would be its size, with the task of raising over $1bn from investors in any equities deal considered a tough assignment in the Australian market at the best of times.
The federal government raised $5.7bn through the float of Medibank in 2014.
It was the biggest IPO since Telstra, which raised $14bn in 1997.
Yet at a time of global travel restrictions due to COVID-19 and as governments are in need of additional funds to support their coffers, a float could be a viable option.
Markets are buoyant despite tough economic conditions and assets like WestConnex would be considered attractive due to their defensive nature.
When Transurban and its consortium backers purchased the 51 per cent in Sydney Motorway’s in 2018, underbidders included IFM, Cintra and Cimic.
It will be interesting to see if they line up again for any upcoming auction, while the Australian listed toll road owner Atlas Arteria could also be around the hoop.
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