The Transurban Group (ASX: TCL) share price won’t be going anywhere on Monday.
This morning the toll road operator requested a trading halt.
Why is the Transurban share price paused?
This morning the Transurban share price was paused so the company could launch an equity raising.
According to the release, the company is raising $4.2 billion to support its acquisition of the remaining 49% stake in the WestConnex from the NSW Government for $11.1 billion.
This will mean Transurban and its Sydney Transport Partners (STP) consortium will now own 100% of WestConnex.
Transurban’s Chief Executive Officer, Scott Charlton, commented: “WestConnex is one of the largest road infrastructure projects in the world with an enterprise value of $33 billion based on this transaction. WestConnex is a key component of the NSW Government’s integrated transport plan to ease congestion and connect communities in Sydney.”
“We feel privileged to take Sydney Transport Partners’ holding in this critical asset to 100%. This transaction is expected to support Free Cash growth and distributions for Transurban security holders for the life of the concession,” he added.
Why acquire WestConnex?
The company notes that WestConnex has close to 40 years concession life remaining. The additional ownership in WestConnex, including the extension to the M5 West concession from 2026, extends Transurban’s weighted average concession life to approximately 30 years.
WestConnex is expected to generate significant free cash and support distributions. This is underpinned by strong asset fundamentals with potential upside from future infrastructure development and economic growth across Greater Sydney.
Management advised that it currently expects to receive more than $600 million of potential capital releases until FY 2025 resulting from its increased stake in WestConnex. This is in addition to more than $2 billion of potential capital releases expected to be achieved between FY 2021 and FY 2025 from a number of assets across Transurban’s portfolio.
The acquisition is expected to be free cash per security accretive over the near, medium, and long-term when including capital releases.
In light of this transaction, management has advised that it expects to pay an interim distribution of 15 cents per share for the first half of FY 2022. This is in line with the prior corresponding period.
Transurban will raise $4.22 billion of new equity. This includes $3.97 billion through a fully underwritten, 1 for 9 entitlement offer to eligible security holders at an offer price of $13.00 per security. This represents an 8.3% discount to the Transurban share price at Friday’s close.
The balance will be raised via a placement to STP consortium member AustralianSuper at $13.07 per security to raise $250 million. This is in addition to AustralianSuper taking up its full entitlement under the Entitlement Offer.