KordaMentha says the 16 banks that were involved in the funding of the original project will receive their money back in full, while the original equity investors, including Li Ka-ShingÆs Cheung Kong Infrastructure (CKI), will receive ôa significant returnö. One estimate puts this return at between 10 cents and 20 cents for every dollar invested.
The Cross-City Tunnel runs for 2.1 kilometres under SydneyÆs CBD and was opened ahead of schedule in June 2005. The building of the tunnel was awarded to a consortium headed by Deutsche Bank, CKI, and Baulderstone. Cheung Kong paid about A$100 million for its 50% interest in the tunnel.
Debt funding for the project was raised on calculations that as many as 90,000 cars would travel through the tunnel each day after a two-year ramp up period. But these figures were never reached, and when traffic numbers peaked at 35,000 cars a day, and the road failed to meet projected revenues, the business breached loan covenants and was placed into receivership in December 2006.
KordaMentha began the sale process for the asset in April this year saying, at the time, that a number of parties had shown unsolicited interest in the tunnel. The firm set up a data room to allow these interested parties to conduct due diligence. "The tunnel is operating solidly," said KordaMentha at the time. "We are pleased with patronage trends even though the numbers are obviously below the original projections. The tunnel, of course, is only in the second year of a 30-year project."
Under the new ownership structure, ABN AMRO will contribute 94% of the equity, while Leighton, which will operate the tunnel, will contribute 6%. ABN AMRO will also arrange the debt financing, fully underwriting the transaction. A spokesperson for ABN AMRO could not confirm details of the debt package, saying more information would be released once approval for the purchase has been obtained from the New South Wales Roads and Traffic Authority. She did say, however, that the proposed debt financing would be restructured to meet the investment grade criteria of Standard & PoorÆs and MoodyÆs.
It is expected that ABN AMRO will inject the Cross-City Tunnel into a newly created infrastructure trust that is due to be offered to institutional investors later this year. The bank already runs a fund called the Social Infrastructure Trust that invests in public-private partnership developments like hospitals and public buildings. Three months ago it announced the launch of a new fund called the Diversified Infrastructure Trust with the stated aim of holding long-term equity positions in various projects. ABN AMRO hopes to raise between A$400 million and A$500 million from institutional investors in a few months time.
The fund already owns a 14.9% stake in Connector Motorways Group, the operator of the new Lane Cove Tunnel and Falcon Street Gateway project. ABN AMRO bought the stake in March, coincidentally from Cheung Kong Infrastructure which had a 40% interest in the Lane Cove Tunnel. The Diversified Trust also owns a 5.9% holding in RiverCity Motorway Group which is currently constructing the North South Bypass tunnel in Brisbane, another project sponsored and advised by ABN AMRO.
The Cross-City Tunnel was launched to great hype and fanfare in 2004 and was held up by the government as a good example of private participation in public infrastructure. While a lot of banks were lining up to be part of the debt syndication, not all participated. In a recent interview with FinanceAsia, Prema Balakrishnan of BNP Paribas, said the fate of the Cross-City Tunnel shows what can happen when credit becomes too readily available to project sponsors.
ôWhen the project financing for the Cross-City Tunnel was being put together a few years ago, we couldnÆt make the traffic numbers stack up so we declined to be part of a consortium that funded the deal,ö says Balakrishnan, who runs BNP ParibasÆ energy and commodities export project. ôWe were criticised for the decision at the time because 16 other banks went in, but our decision has been vindicated.ö
KordaMentha retained UBS as a commercial adviser on the sale of the tunnel.
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