By Swati Pandey
A consortium led by Transurban Group, Australia's biggest toll road owner, will pay A$7.1 billion ($6.6 billion) to buy toll firm Queensland Motorways Ltd, a move likely to pave the way for more such sales by debt-laden states.
The sale by the Queensland state government is part of a push by Australian states to sell large infrastructure assets to pay for capital works programs.
State governments, once hesitant to give up tax revenue by selling infrastructure, have had a change of heart since the state of New South Wales sold its desalination plant for $2.3 billion in 2012.
Infrastructure assets such as toll roads, power stations and ports are in hot demand from pension funds and other investors for their stable, long-run returns and tough barriers to competition, particularly in highly regulated developed countries such as Australia.
The winning bid, valued at more than 27 times earnings, was significantly higher than some analysts had anticipated.
"It's a pretty steep multiple that they paid," a source close to the transaction told Reuters, requesting anonymity because he was not authorized to speak to the media on the matter.
In comparison, the 99-year lease on Port Botany in New South Wales state went for 25 times earnings in a hotly contested auction last year.
"The real transformation is for the Queensland government. They would look at this deal and say 'let's get our other assets up for sale' because they have a massive debt," the source added.
Australia's federal government said last month it would pay states to sell assets as treasurers across jurisdictions agreed to do more to lure local and overseas investors to take a slice of an estimated A$100 billion in infrastructure.
The offer
Transurban said it would raise A$2.74 billion through a fully underwritten accelerated renounceable entitlement offer and a A$400 million placement to its bid partners.
Under the offer, investors can subscribe for 10 new shares at A$6.75, a discount of 7.2 percent to Transurban's Tuesday close.
Melbourne-based Transurban led a consortium that included superannuation fund conglomerate AustralianSuper and Abu Dhabi Investment Co, beating two rival international bidders.
Transurban will own 62.5 percent stake in Queensland Motorways, Australian Super will hold a quarter while Tawreed, a unit of Abu Dhabi Investment Authority, will hold the remainder.
RBC Capital Markets analyst Paul Johnston said in a note to clients that it was difficult to see how, given the sale price, the deal would be accretive to free cash flow per share over the next three years.
But Transurban said the valuation was in line with previous Australian toll road transactions, citing the "quality, growth profile and low-risk nature" of Queensland Motorways.
It also confirmed its distribution guidance of 35 cents per security for FY14.
Three investment consortia - two involving Gulf Arab government-owned funds - had lodged indicative bids for Queensland Motorways.
The Australian Competition and Consumer Commission earlier this month gave the green-light to the Transurban-led consortium's purchase.