Australian listed toll road operator Transurban has bought Sydney’s Lane Cove Tunnel for A$630 million (€446 million; $566 million) after it was placed in receivership earlier this year for failing to service its debt commitments.
The A$630 million paid by Transurban, which will finance the purchase via a capital raising, represents a discount of almost A$1 billion to the price paid by the original project sponsors three years ago. The purchase price represents more than 28x the asset’s 2009 earnings before interest, tax, depreciation and amortisation. Transurban plans to raise A$542.3 million in equity at an offer price of A$4.60 per stapled security with the rest of the deal to be financed with debt.
Lane Cove became the third major public-private partnership (PPP) project to collapse in Australia over the last ten years when its original sponsors – a consortium comprising Leighton Holdings, Mirvac and Cheung Kong Infrastructure – failed to fully repay interest on about A$1.16 billion in debt earlier this year. The road will allow synergies with Transurban’s M2, a Sydney road adjacent to it.
The collapse of Lane Cove – which includes a 3.6 kilometre twin-tunnel tolled motorway and two tolled ramps – has been blamed on wildly inaccurate traffic projections which have seen the road underperform practically since it opened in March 2007.
Original traffic expectations pointed to daily traffic in the region of 100,000 vehicles but Lane Cove had been averaging half that amount. A traffic high of over 62,000 vehicles was reached last November. But that number still compares unfavourably with the 134,000 vehicles per day expected in 2011, according to the original estimates.
Lane Cove’s purchase is said to have angered the Canada Pension Plan Investment Board (CPPIB) and the Ontario Teachers’ Pension Plan (OTPP), the two Canadian pensions which have been bidding to take over Transurban. Both pensions already own upwards of 25 percent in the toll road operator.
According to Dow Jones, executives from CPPIB and OTPP are due to meet with Transurban today with the intention of offering a revised proposal of A$5.50 per Transurban share. But with the extra capital on issue after the equity raising to buy Lane Cove the pensions are uncertain in their ability to make a competitive offer, the newswire reports.
Last November, the pensions submitted an unsolicited A$6.78 billion takeover offer for Transurban, offering to pay A$5.25 per Transurban share. The toll road operator rejected the bid saying it undervalued the company. Transurban also said it had appointed Lazard as a corporate adviser, and that it had conducted a separate review of the company confirming its higher valuation.
Transurban did not say what a satisfactory bid would be, though it did say it was open to other proposals.