CDPQ Joins STP Consortium to Acquire Australia's WestConnex
In an AU$11.1bn transaction that gives it full control of one of the largest road infrastructure projects in the world, a consortium led by Australian road operator Transurban is to acquire 49 percent of the WestConnex toll road in Sydney.
The consortium, Sydney Transport Partners (STP), already owns 51 percent of WestConnex – an approximately 70km-system of toll roads – after it purchased the stake from the New South Wales (NSW) government in 2018 and emerged as the top bidder for the remainder.
In addition to Transurban, which owns 50 percent, STP, AustralianSuper and Tawreed Investments are also partners in the consortium. Following the acquisition of the remaining 49 percent stake of WestConnex, AustralianSuper and Tawreed Investments will maintain their holding in STP, while the consortium will add Canada’s Caisse de dépôt et placement du Québec (CDPQ) as a new partner.
“WestConnex is one of the largest road infrastructure projects in the world and a key component of NSW’s integrated transport plan to ease congestion and connect communities in Sydney,” said Scott Charlton, chief executive of Transurban. “We feel privileged to take STP’s holding in this critical asset to 100 percent.”
Under the terms of the acquisition, CDPQ will contribute 20.5 percent of the acquisition cost for the remaining 49 percent stake in WestConnex for a 10 percent stake in STP. Canada Pension Plan Investment Board's interest in the STP consortium will be 10.5 percent.
Upon completion of the transaction, the NSW government will have received a total of AU$20.4bn from the sale of the entire WestConnex project.
To fund the acquisition, Transurban will raise AU$4.22bn of new equity. Overall, the acquisition will be fully funded by STP with equity upfront and no additional debt funding. The increased WestConnex ownership is currently expected to facilitate more than AU$600m of additional potential capital releases until 2025.
Dominic Perrottet, NSW treasurer, concluded: “This transaction continues our successful asset recycling strategy, which has been the cornerstone of our record A$108.5 billion infrastructure pipeline that has built and upgraded schools, hospitals, road and rail across NSW.”
Byron Kaye of Reuters also reports Transurban consortium to pay $8.1 billion for full control of Sydney tunnel network:
A consortium led by Australia’s Transurban Group will pay A$11.1 billion ($8.06 billion) for a near half stake of the country’s longest auto tunnel network, giving it full ownership of the asset and dominance of Sydney’s toll road network.
Transurban already owned 51% of WestConnex, a roughly 70 kilometre (44 mile) system of toll roads linking Sydney’s sprawling metro area, along with Canada Pension Plan Investment Board, Abu Dhabi Investment Authority and domestic pension fund AustralianSuper. The New South Wales state government owned the remaining share.
Buying out the 49% share from the state gives the group - of which Transurban owns a half share - the full financial benefit as more sections of the giant capital works project open to traffic in the next few years. The consortium added Canada’s Caisse de dépôt et placement du Québec as a member, Transurban added.
“WestConnex is one of the largest road infrastructure projects in the world (and) a key component of the New South Wales government’s integrated transport plan to ease congestion and connect communities in Sydney,” said Transurban CEO Scott Charlton in a statement.
“We feel privileged to take Sydney Transport Partners’ holding in this critical asset to 100%,” he added, using the name of the consortium.
Transurban said it would raise A$4.22 billion in a stock issue to fund its part of the purchase, which already had the necessary regulatory approval. The company owns most Sydney toll roads and dominates Australia’s toll road market from coast to coast.
Australia has been experiencing a spike in mergers and acquisitions activity over the past year as lockdowns put downward pressure on asset valuations while rock-bottom interest rates make it cheaper for investors to raise capital.
Also on Monday, power grid owner AusNet Services Ltd said it would open its books to Canadian investment giant Brookfield Asset Management after it made a A$9.6 billion indicative offer.
CDPQ put out a press release on this deal:
This is another fantastic deal for CDPQ buying a stake in WestConnex, one of the largest road infrastructure projects in the world (and) a key component of the New South Wales government’s integrated transport plan to ease congestion and connect communities in Sydney.
By joining this consortium, CDPQ, Canada's second-largest pension fund, also joins CPPIB, Canada's largest pension fund which already owns a 10.5% stake in this project.
In other words, once complete, Canada's two largest pension funds will own a 20.5% stake in the most important road infrastructure project in Australia and one of the largest road infrastructure projects in the world.
Australia's Transurban will remain the majority owner of this project and operator. It put out this press release on the WestConnex acquisition:
Transurban, as part of the Sydney Transport Partners consortium, has successfully been awarded 100% ownership of WestConnex, Australia’s largest road infrastructure project.
Transurban has managed WestConnex since 2018, which has included opening the New M4 Tunnels and the M8 and operating these new assets alongside the responsibility for the M5 East tunnel. Together this network continues to transform previously congested corridors across Sydney.
One in five Australians call Sydney home, and 40% of the Sydney population is expected to live within 5km of WestConnex in 2031. WestConnex draws vehicles from across the city by providing a critical connection between Sydney’s west and south-west and the CBD, as well as a corridor to the airport and port.
With close to 250 million trips taken across WestConnex last financial year, drivers are enjoying significantly improved travel times, journey reliability, safety and connectivity.
Construction of the remainder of WestConnex has largely been completed, and our work is continuing on the M4-M5 Link Tunnels as well as the Rozelle Interchange (being delivered by Transport for NSW).
“WestConnex is one of the largest road infrastructure projects in the world with an enterprise value of $33 billion based on this transaction,” says Transurban CEO Scott Charlton.
“WestConnex is a key component of the NSW Government’s integrated transport plan to ease congestion and connect communities in Sydney.”
For those unfamiliar with Transurban, here is more about this company:
As one of the world’s largest toll-road operators, everything we do works to get people where they want to go, as quickly and safely as possible – from designing and building new roads to researching new vehicle and road safety technology.
We’re an Australian-owned company and we build and operate toll roads in Melbourne, Sydney and Brisbane, as well as in Greater Washington, United States and Montreal, Canada.
We design our roads for the long term, ensuring they’ll deliver real and lasting benefits to cities and their communities. While you’re thinking about getting home on time today, we’re also thinking about how you’ll get home 10 or 20 years from now.
We’re also a technology company – we research and develop innovative tolling and transport technology that makes travel easier for everyone.
As an industry leader, we set high standards for our performance on social and environmental issues, and we invest in both to create social inclusion and manage our environmental impacts. We’re also a member of our local communities. We build parks and bike paths, create new community facilities, and plant trees for wildlife habitats – helping people connect with each other and their neighbourhoods.
When you're partnering up with an experienced partner like this to invest in a major toll road project in Australia, you're partnering up with a world-class operator that knows how to deliver value over the long run.
That's why I can confidently state this stake in WestConnex will be a great long-term investment for CPPIB, CDPQ and all the members of the STP consortium.
Interestingly, back in 2016, the WestConnex project was widely criticized in Australia as being too expensive and some were calling for a suspension of work.
I'd say the New South Wales (NSW) government made a great return on this sale and they know how to manage their growth and infrastructure projects in Australia.
The world is getting ever more populated, smart urban planning requires smart long-term infrastructure projects and I'm glad CDPQ and CPPIB own a stake in this major project.
In other related news, CDPQ announced that it will acquire a significant stake in ICR, a global leader in strategic communications and advisory services:
It sounds like this firm is a leader in strategic communications and that will prove useful to CDPQ in many ways.
Anyway, I wanted to bring both these deals to your attention as I think they are significant and definitely worth covering.
Below, Sky News Australia reports the New South Wales government has sold its remaining stake in Sydney's WestConnex motorway for A$11 billion.
Second, 7News Australia reports on how Transurban consortium has tightened its grip on toll roads by paying A$11 billion to secure total control of WestConnex. "It's a virtual monopoly that's hitting the hip pockets of most Sydney drivers especially those in our west and southwest."
Also from 7News, a major milestone for Australia's largest road infrastructure project occurred in April with a tunnel breakthrough for the final stage of WestConnex. The tunnel links the M4 to the airport and M5. It's set to save travel time but with new tolls.