CKI mulls offers for holding in Sydney toll tunnel
Cheung Kong Infrastructure Holdings (CKI) is considering uninvited offers for its 40 per cent stake in the soon-to-be-opened Lane Cove toll tunnel in Sydney, which may lead to a A$310 million (HK$1.89 billion) sale, sources say.
Infrastructure investor Macquarie Bank and toll-road operator Transurban Group have offered to buy the stake, for which CKI paid A$239 million in 2004, according to the Sydney Morning Herald.
The 3.7-kilometre toll tunnel linking the northwestern suburbs of Sydney with the city centre is due to open in about a month.
The offers came barely two weeks after CKI's 50 per cent-owned A$1 billion Cross City toll tunnel went into receivership with A$560 million of debt.
Last year, the Hong Kong company sold part of its 50 per cent stake in three electricity distributors for A$2.4 billion.
'The company is looking at various offers and hasn't made up its mind yet,' said a source familiar with CKI. 'It is looking at a huge premium price given that the construction work is nearly completed and it is a much better asset than the Cross City tunnel.'
The deal would mean a trade-off between CKI's desire to 'get bigger' for longer-term growth in Australia or to 'get smaller' by cashing in on the asset, he said.
An analyst with a European brokerage valued the Lane Cove tunnel at more than A$310 million, or a 30 per cent premium on the price paid by CKI.
'As the risk profile of the project decreases in the run-up to its opening, the greenfield investor deserves a bigger premium on the price as it has taken on the construction risks,' the analyst said. 'A fair value would be a 30 per cent premium, but CKI is looking for even more.'
Prospects for the Lane Cove tunnel are seen as brighter than for the Cross City tunnel as the route running under Epping Road offers a crucial link between Gore Hill Freeway and the highly congested M2 Motorway at North Ryde.
Cross City tunnel, a 2.1km link designed as an alternative route from congested roads in the city's main business district, was severely underused, with traffic barely reaching 33 per cent of its forecast of 90,000 vehicles a day, due partly to its A$3.50 charge for each way for a two-minute ride.
'The Lane Cove tunnel looks less risky, according to some infrastructure consultants in Sydney,' the analyst said.
The tunnel faces a small chance of missing its forecast of 100,000 to 115,000 cars a day as a result of routine traffic jams on the M2 Motorway, according to a JP Morgan report by analyst Edmond Lee.
CKI might sell part of its 40 per cent stake in the Lane Cove project to retain its control in the project, another analyst said.
Other Lane Cove shareholders are AMP Capital Investors and Motor Trades Association of Australia.
CKI shares fell 2.81 per cent yesterday to HK$25.90. The company might report a 36.35 decline in net profit to HK$3.82 billion for last year, according to a Thomson First Call poll.