Transurban Re-Invents Its Financial Wheel

Submitted by Craig Strzelecki on 20 June, 2008 - 08:58

Transurban (TCL) Chief, Chris Lynch has introduced a new cost reduction programs and reinvented new means to finance its debts and increase the cash flows. According to Lynch, the 2009 distribution costs would be funded on the basis of cash flows only. The payout would not be funded by debt accumulation at the cost of company assets.

The Toll road operator, Transurban shall stay clear from debt funded business model and improvise upon its cash flows. Lynch also announced the $1 billion fund raising program for the company. The company shall experience a radical change in owing to the changing debt market and higher funding costs. Currently the infrastructure companies like Transurban accumulates debts against their future cash flows and their assets like toll roads as securities. The loan are usually refinanced but never repaid. This leads to a never ending debt portfolio that makes the company vulnerable to market condition like erstwhile credit crisis.

Lynch announced that company's model of borrowing money to pay its shareholders is feasible given to the present market conditions. This means that the dividends to the shareholders shall be slashed to 22 cents for 2008-09 payouts against its earlier February estimate of 57 cents. Thus it has slashed its dividend payouts by more than 60 percent.

He also announced that Transurban shall raise $998 billion from the market. It shall raise $659 million by selling 10 percent stake to Canadian Pension Plan Investment Board. The remaining amount of $339 million shall be raised with dividend reinvestment and share purchase plan.

Lynch explained that although the traffic on the toll roads is on the rise, nevertheless, there is serious need to restructure the financing mechanism for better sustainability in the market. Moreover, these funds would be used to pay $400 million in concession notes secured against CityLink in Melbourne and for future expansion plans of Sydney M2 and M5 Motorway. The cost cutting program would enable the company to save $20 million annually at an initial cost of $10 million.

Transurban currently owns Hills M2 in Sydney and CityLink Motorway in Melbourne. It also holds stakes in four other toll roads in Sydney and two in Virginia in United States. The company owns total eight toll roads in Australia and US cumulatively. Shares for Transurban were at a trading halt on Wednesday after plunging nearly 5.1 percent and trading at $5.41.