MIG in toll road pursuit of Texas

MACQUARIE Infrastructure Group has resumed its onslaught on the US toll road market by teaming up with sister US wholesale fund Macquarie Infrastructure Partners to make a binding offer to develop and operate the SH121 toll road in northern Texas.

But investors reacted with scepticism to MIG's return to the US acquisition trail. The company's stock closed down 7c yesterday at $3.60.

Four private groups are seeking to operate sections of Highway 121, Michael Morris, director of transportation for the North Central Texas Council of Governments, the regional planning agency, told the Dallas Morning News last year.

Mr Morris said the winning bid would be at least $US2.5 billion ($3.2 billion) with $US2 billion of that being made as an upfront payment.

The road will eventually stretch for 42km and 11km has already been completed and is charging tolls.

The two Macquarie Bank-managed funds will own the equity in the new project - if their bid succeeds - but the consortium also includes non-equity partners Kiewit Texas Construction and JD Abrams, a highway contractor.

MIG, MIP and their partners hope to hear from the Texas authorities about whether they have won by the end of next month.

The bid marks MIG's first return to the US market since investors revolted over the price the company paid for the Indiana Toll Road last year.

MIG partnered with Spanish company Cintra Concesiones to buy the ITR for $US3.825 billion last year, but the price - which was reportedly $US1 billion more than the nearest bidder - alarmed investors and put MIG's share price under severe pressure.

Amid rumblings that Macquarie Bank could be replaced as manager of MIG, the toll road company's chief executive officer, Steve Allen, instituted a number of reforms including spinning off the company's mature Australian road assets into the Sydney Roads Group (SRG) and selling half of MIG's US toll road assets to sister fund MIP.

The rationale behind splitting the businesses was that MIG's shareholders were split between those who wanted a low-fee vehicle with steady, predictable returns and those who were willing to pay more in fees and take more risks, if MIG could help them take advantage of the massive potential of the US toll road market.

Credit Suisse has estimated there are $US250 billion of toll roads in the US which could be privatised.

UBS recently recommended that the jewel in the US toll road crown, the New Jersey Turnpike, which is worth an estimated $US20 billion, should be sold. New Jersey Governor Jon Corzine is waiting for a further report to decide whether the road should be sold.

So far, MIG's restructuring seems to be working. Transurban offered to buy SRG for $1.26 billion in December, offering former MIG investors a nice premium.

Meanwhile, MIG's stock has recovered from a low of $2.61 on July 27 to close at $3.60 yesterday.

An aggressive capital restructuring also seems to have played a part in the stock's recovery.

During the restructuring period, MIG promised investors it would concentrate on proving its existing portfolio rather than seeking new opportunities, but the Texas project was already under way at that time.