Transurban is currently negotiating for two toll roads in Texas
May 4, 2006
By Rod Myer
The Age (Australia)
TRANSURBAN may launch a US subsidiary as a base for a significant road portfolio there.
The company has made its long-promised first inroad into America with the $US611 million ($A815 million) purchase of a 99-year lease on the 14-kilometre Pocahontas Parkway in Richmond, Virginia.
Pocahontas returned only $US11 million last year on debt of $US487 million because of a slow pick-up in traffic since its opening in 2002. But Transurban chief executive Kim Edwards said traffic should increase with the building of 3200 houses in its catchment area this year.
He described the deal as "very positive for us". It was done on "70 per cent debt, which is conservative compared to what's been done elsewhere".
Given projected traffic growth of 4.4 per cent a year and toll increases averaging 5.8 per cent for 10 years, Mr Edwards said revenue from Pocahontas should rise 10 per cent for the first four years.
"Pocahontas cements our position in the Virginian market," Mr Edwards said.
Transurban is now negotiating for two other projects in the region — the Capital Beltway and the I-95.
If it bought these, it would own a strategic, linked network of roads that would be the foundation of a US portfolio.
To build a significant US business, Transurban would need either to float a US company or develop a separate partnership with US investors, probably in about two years, Mr Edwards said.
Transurban will put in equity of $US136 million at the financial close, probably next month, and as much as $US55 million more over six years if returns do not meet expectations. The equity will be raised through Transurban's existing distribution reinvestment scheme.
The road crosses the James River and provides access to the Richmond International Airport. Transurban will also build a connector to the airport if state authorities give permission and federal authorities provide concessional funding of $US150 million. Of that, only $US45 million would go to the connector, while Transurban would be free to use the remainder to refinance bank debt on the rest of the project.
Deutsche Bank analyst Clinton Wood said he liked the deal. "It's got a long life and a higher internal rate of return than I expected. It's a very good starter asset (for a US road portfolio)," he said.
Mr. Edwards said Transurban was also negotiating for two toll roads in Texas and was examining another two in Britain.
The Capital Beltway deal should be finalised early next year and the I-95 in early 2008. High fuel prices and yesterday's rise in interest rates should not affect Transurban's profitability, Mr Edwards said.
Fitch Ratings maintained its A- credit rating on Transurban, but said the "acquisitiveness" demonstrated by the deal could affect future ratings.
Transurban shares lost 2¢ to $6.62.
The reporter owns Transurban shares.
Copyright © 2006. The Age Company