RiverCity Motorway readies A$725 million public offering

Arrangers consider an Asian roadshow to tap local demand for infrastructure projects.
RiverCity Motorway, the winning consortium behind BrisbaneÆs north-south bypass tunnel, will lodge the prospectus for its A$725 million ($540 million) equity fund raising on Friday with the institutional bookbuild set to start two weeks later.

The prospectus will outline the economics of BrisbaneÆs first privately-operated toll road and detail the structure of the IPO which is being arranged and underwritten by financial sponsors ABN AMRO Rothschild.

A source close to the deal says the IPO is likely to follow a similar structure to the ConnectEast transaction completed in 2004 to fund a 39-kilometre toll road in MelbourneÆs Southeast. The A$1.2 billion IPO for ConnectEast included a partly-paid security structure and an attractive fixed distribution during the construction period.

ConnectEast was also underwritten by ABN AMRO Rothschild, in conjunction with Macquarie Bank.

ôInvestors in ConnectEast liked the idea of receiving a fixed distribution payment during the construction phase of the project, so I can see the arrangers following the same model,ö says the source.

While the source was unable to indicate pricing on the IPO, he says a 50/50 split between retail and institutional distribution is likely.

RiverCity Motorway is expected to attract plenty of interest from institutional investors. The project involves building a 5km tunnel under the Brisbane River allowing commuters to bypass the central business district.

Energy and infrastructure investors who were ready to buy into the A$3 billion privatisation of the Snowy Hydro power scheme now have spare capacity following the cancellation of the Snowy Hydro deal by government sponsors last week.

The Federal government which owns 13% of Snowy Hydro caved in to public pressure and pulled out of the privatisation plan, causing the New South Wales state government (with a 58% stake) and the Victorian state government (29%) to follow suit. The IPO was scheduled for the end of this month.

Demand is also likely to be high in Asia where infrastructure assets are flavour of the month. ôABN AMRO has had good experiences in Asia with the distribution of ConnectEast shares in 2004 and the more recently there has been the listing of the Korean Road Infrastructure Fund,ö says the source. ôAn Asian roadshow for RiverCity is being considered.ö

Locally, arrangers will be working to distance the project from another toll-charging tunnel in Sydney, the Cross City Tunnel, which has run into difficulty and disappointed investors. The tunnel hasnÆt met forecast traffic flows since it opened in August last year, forcing operators Hutchison Whampoa (with a 50% stake) to halve toll charges for three months.

Just this week the sponsoring state government reneged on its pre-deal obligation to funnel traffic into the tunnel by closing certain roads and thoroughfares above ground. The road closures have proved as unpopular with motorists as the high toll charges.

Commentators say the RiverCity Motorway is unlikely to attract the same sort of public criticism as the Cross City Tunnel and that the Brisbane City Council has not made unrealistic promises to the winning bidders. But then again, when the Deutsche-Westpac consortium won the Sydney project back in 2002 there were no signs of current problems either.

The listing of the RiverCity Motorway on the Australian Stock Exchange is expected to be completed by the end of July.

Meanwhile the A$1.5 billion debt component of the project is being syndicated by ABN AMRO, Calyon, HSBC, West LB and National Australia Bank.
¬ Haymarket Media Limited. All rights reserved.
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