SNC cancels IPO for highway unit

Canadian engineering and construction company SNC Lavalin has dropped plans to purchase additional shares in Toronto’s 407 toll road via an initial public offering of shares for its highway subsidiary, citing “adverse market conditions”.

SNC, which already owns 17 percent of 407, had hoped to use the proceeds to buy another 10 percent from Cintra, the toll road subsidiary of Spanish infrastructure conglomerate Ferrovial.

Cintra had sought to sell the stake to the Canada Pension Plan Investment Board (CPPIB) for C$894 million (€630 million; $872 million). But a right of first refusal for 407’s current shareholders gave SNC the option to buy the stake in lieu of CPPIB.

SNC planned to offer shares in a new subsidiary, TransAxio Highway Concession, to buy its existing 16.8 percent holding in 407 and exercise the right of first refusal to purchase Cintra’s shares.

But “market conditions at this time did not permit us to proceed with the offering on favourable terms,” SNC Lavalin president and chief executive officer Perre Duhaime said in a statement.

As a result, “our previously announced transaction with Ferrovial/Cintra will move forward,” said a spokesperson for CPPIB.

407: trading hands

If the deal closes, it could leave the C$129.7 billion Canadian pension with a 40 percent ownership in 407. That’s because, in addition to the 10 percent it would acquire from Cintra, CPPIB is also poised to acquire a 30 percent stake in the 407 via the buyout of one of its other shareholders, toll road operator Intoll.

CPPIB has offered A$3.4 billion (€2.4 billion; $3.1 billion) for all the shares of Sydney-listed Intoll. The offer won the backing of Intoll’s directors in August and is up for a shareholder vote in November.

Cintra, at 43 percent, and SNC, at 17 percent, will own the remaining 60 percent of the 407 if CPPIB’s Cintra and Intoll deals both close.

Since it opened for traffic in 1997, the 407– which runs east and west for about 108 kilometers just north of Toronto – has become a profitable toll road asset with strong ridership. Duhaime, the SNC chief executive, called it a “premier infrastructure asset” in his statement.

In 1999, the province of Ontario leased the road for 99 years in exchange for a $3.4 billion payment form a group of investors led by Ferrovial. In 2009, 407 cleared revenues of C$560 million.

SNC’s Toronto-listed shares closed yesterday down 1 percent at C$52.5 after the announcement of the IPO cancellation. But the shares were up .4 percent today in early afternoon trading.