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Transurban to Raise Up to A$700 Million, Take Full Control of M5 West Highway

By David Winning

 

SYDNEY--Transurban Ltd. (TCL.AU) said it is seeking to raise up to 700 million Australian dollars (US$473.3 million) in new capital to fund the buyout of the M5 West toll road in Sydney, rounding out a year when its net profit fell by around 64%.

Transurban said it would raise A$500 million through a fully underwritten placement and seek up to A$200 million more via a security purchase plan. New securities will be placed with institutional investors at A$14.70 each, representing a 3.5% discount to the stock's closing price of A$15.23 on Tuesday.

The company said much of the proceeds would be used to acquire the remaining 34.62% interest in the M5 West highway for A$468 million, giving it full control of the asset.

The M5 West deal and capital raising were announced alongside a fall in net profit to A$171 million in the 12 months through June from A$468 million in the 2018 fiscal year.

Proportional toll revenue--its preferred measure of the performance of its roads--rose by 10% to A$2.58 billion in the year through June. Proportional earnings before interest, tax, depreciation and amortization increased by 12% to nearly A$2.02 billion when excluding significant items.

Directors had earlier declared a final distribution of 30.0 Australian cents a share, bringing its total payout to 59.0 cents. The annual payout was up 5.4% and Transurban said it expects distributions of 62 cents a security in the 2020 fiscal year.

Transurban is in the midst of a major expansion in Australia and North America, with large investments in projects ranging from the WestConnex highway in Sydney to an extension of the reversible I-95 express lanes in Virginia and last year's 840 million Canadian dollars (US$632.6 million) purchase of the A25 toll road and bridge in Montreal.

Those growth plans, combined with falling bond yields, have led to Transurban's shares rising more than 40% from lows reached in October. Analysts at Macquarie previously said that Transurban, with long-dated contracts, is particularly sensitive to changes in interest rates, especially as newer assets like WestConnex are under construction.

Transurban's expansion isn't without its challenges, however. Household budgets in countries such as Australia are increasingly stretched and consumers must balance toll road fees with outgoings that include energy bills and health-insurance costs. The risk is that traffic forecasts on new toll roads may prove optimistic, squeezing returns on investment, while local communities grapple with congestion as car drivers seek alternative routes on roads that are free.

 

Write to David Winning at david.winning@wsj.com

 

(END) Dow Jones Newswires

August 06, 2019 19:07 ET (23:07 GMT)

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