ConnectEast in overseas sale
Source: The Australian
CONNECTEAST chairman Tony Shepherd says infrastructure ownership in Australia needs a fresh approach, after agreeing to sell the operator of Melbourne’s EastLink toll road to offshore investors for $2.4 billion.
Mr Shepherd said the listed infrastructure model, with its typical focus on short-term valuations, failed to deliver value for shareholders, and assets were often better off in private hands.
“We would be unlikely to get to this price level within three years, so we felt 55c cash now was a good offer and it gave greater certainty” to shareholders, he said.
The ConnectEast board has recommended the $2.4bn offer from Horizon Roads, a consortium of eight funds led by the company’s largest shareholder CP2.
The latter owns or controls about 35 per cent of ConnectEast and was the same fund that tried to take over tollroad giant Transurban last year.
ConnectEast shareholders were offered 55c a share cash, a 22 per cent premium to the company’s closing price on Thursday, but securityholders may also elect to take a stake in an unlisted registered managed investment scheme that will maintain an interest in EastLink.
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ConnectEast shares soared on the news, finishing 20 per cent higher at 54c.
Mr Shepherd said the group’s refinancing obligations were a factor in recommending acceptance of the offer.
“We are still in a ramp-up phase (on tollroad traffic) and you have to look at what is the state of debt and equity markets in three years,” he said.
“We have refinancing in 2012 and in 2014 and we need to take a view of what market conditions will be at that time.”
He said the group had total debt of $1.2bn currently and that it had to refinance $800 million of the debt next year and $400m in 2014.
Investors have viewed the offer positively and analysts expect it to be be approved.
“It’s fair to say the offer is within the ballpark of other tollroad transactions but ConnectEast has also made some good gains in the past 12 months with its shares rising from about 40c to 45c which is actually better than the market,” one analyst said.
ConnectEast shares have lost about two-thirds of their value since the road began operating in 2008.
CP2 commenced exclusive discussions in March but Mr Shepherd emphasised the board had been open “to any suggestions from anybody” and had spoken to several international investors including Canadian pension funds.
“But with CP2 at 35 per cent, they were the logical group,” he said.
CP2 managing director Syd Bone said there had been a scheme put in place to retain senior management following the buyout.
He said privatising EastLink was a better outcome because the “listed infrastructure model is not a good fit”.
CP2 will sell its direct interests into the consortium offer and hold less than 1 per cent if the bid is successful. Funding of $1.4bn has come from a group of eight funds that include the UK Universities Superannuation Scheme, National Pension Service of Korea, New Zealand Superannuation Fund and Teachers Insurance and Annuity Association of America.
Details of the proposal and a report from independent expert Deloitte Corporate Finance will be sent to shareholders next month with a meeting to vote on the deal expected in September.