A casual observer of the Australian PPP toll road scene might be excused for being pessimistic about the finances of them. After all, more news is made of the ones that don’t do well than the many that do. Cross City Tunnel in Sydney, Clem 7 tunnel in Brisbane and the Eastlink toll road in Melbourne have all failed to meet expectations. However, in all of these cities are very successful privately owned toll roads as well, and even poorly performing ones have interest from investors with their eye on future growth.
|M3 - Eastlink toll road|
Melbourne’s Eastlink is one of those. Eastlink is 39km long and was fully completed in 2008. It forms a major north-south corridor through the eastern suburbs of the greater metropolitan area of Melbourne. It connects the untolled Eastern Freeway (a radial route from the north of the central city to the eastern suburbs to the untolled Monash Freeway (a radial route to the south east) and ends at the Mornington Peninsula Freeway. It is owned by ConnectEast, which has as its largest shareholder Australian Infrastructure Investment firm CP2 (35%), other major shareholders being Lazard Asset Management, RARE Infrastructure and the Commonwealth Bank of Australia.
CP2 is seeking to buy out ConnectEast in its entirety through its investment house Horizon Roads, which is a consortium of eight funds (includes the British Universities Superannuation Scheme, the National Pension Service of Korea, New Zealand Superannuation Fund and the Teachers Insurance and Annuity Association of America). The offer is worth A$2.17 billion (US$2.24 billion) or A$0.55 (US$0.57) per share. Given the shares for ConnectEast originally floated at A$1 a few years ago, and Deloitte has since claimed the offer is “fair and reasonable” within a range of A$0.51 and A$0.57 (US$0.53-US$0.59), there may be a reasonable chance of it proceeding as shareholders seek to get what they can. The shareprice jumped 20% when the offer was made, and is now around A$0.51. CP2 isn't supporting rival investor, Transurban, making a bid - which seems obvious, except that it has a minority stake in Transurban as well.
Presumably Horizon Roads thinks there are good prospects for the road. The Herald Sun reports that the difference between the forecast and actual revenue per month is around A$242,237 (US$249,818). More recently, traffic and revenue have been climbing. ConnectEast reported a 11.9% rise in annual daily revenue for August 2011 compared to August 2010, with total revenue of A$661,525 (US$682,229) for the month. Traffic numbers were 194,555 in August 2011, which was a 8.5% increase on the previous year, indicating increasing yields.
The takeover offer has been given the clearance by the Foreign Investment Review Board, so shareholders will vote on it on 27 September 2011. It will be interesting to see if they think the offer is fair and reasonable. Some may see it as a chance to bailout of what looked like a bad investment, others may prefer to hang on, because the current investment climate may make the road look like a better prospect than some alternatives.
Whatever happens, it wont affect toll rates which under the concession can only be varied annually according to changes in the consumer price index. ConnectEast spokesman James Tonkin claims “EastLink will continue to have the cheapest per kilometre car tolls of any private tollway in Australia”. He’ll be hoping that persuades a few more motorists to consider the road is better value than they may otherwise think.