By Ross Kelly, November 10, 2013
Investors have collectively lost billions of dollars on the toll roads and tunnels in recent years because of too much debt and overestimates on traffic volume. Now, sharply lower prices for those assets and more-realistic traffic assessments are adding up to opportunities for others. The asset, which cost A$680 million to build, has been on sale since it defaulted on its debt repayments in September.
Scott Charlton, Transurban’s chief executive, said acquiring the debt will allow Transurban to consider restructuring options for the 2.1 kilometer stretch of road that connects the eastern and western flanks of inner-city Sydney. A sale process managed by the tunnel’s receivers, KordaMentha, is due for completion early next year and Transurban intends to participate, Mr. Charlton said.
Some investors are finding that Australian toll roads and tunnels offer low-risk, high-yield opportunities. In August, the Clem Jones Tunnel, a key artery in Brisbane, was acquired by Australian investment manager QIC Ltd. for US$579 million after its leaseholder failed to meet debt obligations. The asset attracted four bidders, including consortium members from Europe.
Transurban is already Australia’s biggest toll road operator and the Cross City Tunnel would fit nicely with other Sydney assets in its portfolio, according to Moody's Investors ServiceMCO +0.52%. The credit rating agency said the acquisition of the tunnel’s debt, although credit negative, wouldn’t affect its rating on Transurban.
The company will benefit from Cross City Tunnel’s right to escalate tolls by at least 3% a year until 2017, as well as operating synergies between the tunnel and the Eastern Distributor—which connects the city’s north, south and east—because of their physical links, said Arnon Musiker, a Moody’s Vice President.
“We also recognize Transurban’s sound track record in executing Australian toll road acquisitions, particularly the Lane Cove Tunnel, which it also acquired in a receivership,” and which benefited from its links to another toll road nearby, Mr. Musiker said.