Wednesday, May 03, 2006

Transurban takes "first baby step" into the U.S. market

Transurban Buys Pocahontas Parkway Road for $611 Million

May 3, 2006

Copyright 2006

Transurban Group, Australia's second- biggest toll road owner, agreed to buy Virginia's Pocahontas Parkway for $611 million, gaining its first U.S. motorway.

Transurban bought the rights to manage, operate and maintain the 8.8-mile (14 kilometer) highway known as State Route 895 for 99 years, the Melbourne-based company said in a statement today. Transurban plans to build an extension linking the route to Richmond International Airport in Virginia's capital.

Transurban is among companies attracted to the reliable cash flows from toll roads that it estimates will spur some $200 billion of deals worldwide in the next 10 years. Macquarie Infrastructure Group and Cintra SA got state approval in March for their $3.85 billion bid for Indiana's toll road as U.S. states sell rights to their highways to pay debt.

Pocahontas is Transurban's "first baby step into the U.S. market,'' said Jason Teh, who helps manage the equivalent of $4.2 billion at Investors Mutual Ltd. in Sydney, including more than 22 million Transurban shares. "A lot of the state governments there are running budget deficits and they need the cash from wherever they can get it.''

There are $25 billion of private investments proposed for new and existing toll roads in six U.S. states including Virginia, Texas and Oregon, according to a report last month by the Los Angeles-based Reason Foundation, which advocates for such privatization.

More Highway Sales

More U.S. states will sell roads as they seek to raise non- tax revenue to pay for repairs to heavily traveled highways and bridges, Merrill Lynch & Co. said in a report in March.

The firm said 14 U.S. states have enacted laws allowing for toll-road, public-private transactions, and five more have introduced legislation permitting it.

Shares of Transurban fell 1 cent to A$6.63 at 10:44 a.m. in Sydney. They've gained 0.5 percent this year, lagging behind the benchmark S&P/ASX 200 Index's 10 percent rise.

The company will take control of the road by November and agreed to pay all of Pocahontas Parkway's existing debt. The road has bonds valued at $487 million due, included in the purchase price. Transurban paid $191 million in equity.

``They should be able to fund that reasonably well,'' said Luke Maffei, an analyst at Shaw Stockbroking Ltd. who rates the shares ``neutral.'' ``They'll be looking for additional revenues going forward in terms of traffic increases and toll escalation.''

Foothold in Virginia

Pocahontas Parkway will account for 4 percent of Transurban's road portfolio, which includes highways in Sydney and Melbourne.

``Transurban has acquired an asset with a solid growth outlook at the right time in its life cycle,'' Transurban Chief Executive Officer Kim Edwards said. ``Pocahontas Parkway also gives Transurban an operational foothold in Virginia.''

Last month, Spain's Abertis Infraestructuras SA agreed to buy Italy's Autostrade SpA to form the world's biggest highway Network and compete for more road projects.

Governments in Europe and the U.S. are selling off roads and airports amid competition from banks, construction companies and investors for acquisitions.

Last year, Transurban was named preferred bidder for a $900 million development of Virginia's I-95 tollway and short-listed for a Dallas road development.

Transurban didn't name its adviser for the latest deal. It spent $11 million on finance and arranging fees.

Standard & Poor's said it's reviewing Transurban's BBB+ rating for a possible cut.

To contact the reporter of this story:
Vesna Poljak in Sydney

Last Updated: May 2, 2006 21:28 EDT

©2006 Bloomberg