The Transurban Group [ASX:TCL] share price is halted today pending an equity raising.
Transurban seeks to raise $4.2 billion to acquire the remaining 49% equity stake in WestConnex from the NSW government for $11.1 billion.
This means Transurban and its Sydney Transport Partners (STP) consortium will own 100% of WestConnex.
Why does Transurban want to acquire WestConnex?
TCL notes that WestConnex — one of the largest road infrastructure projects in the world — has close to 40 years of concession life remaining.
The additional ownership in WestConnex, including the extension to the M5 West concession from 2026, extends Transurban’s weighted average concession life to approximately 30 years.
WestConnex is predicted to generate significant free cash and support distributions.
This prediction is backed by strong asset fundamentals with potential upside from future infrastructure development and economic growth across Sydney.
Transurban noted it expects to receive more than $600 million of potential capital releases until FY25 due to its increased stake.
This is in addition to more than $2.0 billion of potential capital releases expected between FY21 and FY25 from several assets across Transurban.
CEO Scott Charlton said:
‘WestConnex is one of the largest road infrastructure projects in the world with an enterprise value of $33 billion based on this transaction.
‘WestConnex is a key component of the NSW Government’s integrated transport plan to ease congestion and connect communities in Sydney.
‘We feel privileged to take Sydney Transport Partners’ holding in this critical asset to 100%.
‘This transaction is expected to support Free Cash growth and distributions for Transurban security holders for the life of the concession.’
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How will Transurban fund the acquisition?
To proceed with this acquisition, Transurban will raise $4.2 billion of new equity.
This includes $3.97 billion through a fully underwritten, 1 for 9 Entitlement Offer to eligible security holders at an offer price of $13.00 per security.
This number represents an 8.3% discount to the TCL’s share price at Friday’s close.
The remaining balance will be raised through a placement to STP consortium member AustralianSuper at $13.07 per share to raise $250 million.
This is in addition to AustralianSuper taking up its full entitlement under the Entitlement Offer.
What’s the outlook for the Transurban share price?
WestConnex’s acquisition by TCL can be considered as a strategic and a long-term move.
So Transurban might have to wait before their investment can start giving them a substantial return.
For instance, 40% of the Sydney population is expected to live within five kilometers of WestConnex by 2031.
‘WestConnex offers customers faster, safer, more efficient routes around Sydney.
‘The NSW Government expects WestConnex to provide travel-time savings of approximately 40 minutes between Parramatta and Sydney Airport.’
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