Shares in our largest toll road operator Transurban Group (ASX: TCL) have gone into a trading halt ahead of its massive $4.8 billion capital raise to fund the acquisition of a 51% stake in Sydney’s WestConnex tollway.
Transurban announced this morning that the consortium it’s leading has won the tender for WestConnex as it kicked off what has been described as the biggest capital raise on the ASX since Commonwealth Bank of Australia (ASX: CBA) tapped shareholders for $5 billion in 2015, according to the Australian Financial Review.
The capital raise bucks the trend of the reporting season with many companies actually handing back capital to investors through special dividends and share buybacks instead of asking for fresh funds.
Transurban’s cap raise is also reported to be larger than the $3 billion plus that most analysts were expecting but I suspect that shareholders will be eager to participate given the strategic value of WestConnex and Transurban’s grip on the national toll road industry, particularly in Sydney.
Transurban is looking to raise $4.2 million through a fully underwritten and renounceable 10-for-57 rights issue priced at $10.80 a new share, which is a 10.4% discount to its last closing price. Shareholders can trade the rights on the ASX.
The company will raise a further $600 million via a placement to some members of the consortium it leads but these members will pay $10.85 a pop.
Transurban will have to cough up $4.1 billion of the $9.3 billion the consortium will have to pay for WestConnex and the excess capital from Transurban’s new shares sale will be used for general corporate purposes.
The toll road company has reaffirmed its 59 cents a share dividend for FY19 and mid-single digit growth in distributions for FY20.
Here are some other key highlights about WestConnex:
- Transurban’s consortium is granted a 42.5-year concession over the tollway.
- WestConnex is projected to save 40 minutes in travel time between Parramatta and Sydney Airport by 2031.
- 40% of Sydneysiders are expected to live within 5km of WestConnex.
- WestConnex will double Transurban’s lane kilometres in Sydney.
- Transurban will contribute around $350 million to the construction of WestConnex.
This is a good outcome for Transurban although it isn’t the only one in the sector with a bright outlook. Analysts also like Atlas Arteria Group (ASX: ALX) with Credit Suisse forecasting distribution growth of 25% on a compound basis over the next four years.
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.