Home' Future Building: The Australian Infrastructure Review : Issue 1 Contents W
ustralia took the opportunity to
question the future
bility of PPPs an
whether there would ever be an appetite
for banks to fund these kinds of transactions a
gain. In particular,
such as Sydney's Lane Cove Tunnel and Brisbane Airport Link, as
reasons why the PPP model was in serious trouble -- if not dead.
Strangely, however, the problems that beset both Lane Cove Tunnel
retail investors (in the case of Brisbane Airport Link). However,
in both instances, the funding model used in these projects will
probably not be seen in the same guise for many years.
Drilling deeper into the funding issue, for a number of years
model relied heavily on bonds being sold into the market, with little
it is recognised that the bond market will recover over time, it is
unlikely that it will bounce back fast enough or vigorously enough
to provide debt funding for PPP projects of over $1 billion in the
immediate future. It is more likely that it will re-emerge gradually
through the taking up initially of a minority of the funding tranches.
It is also likely that the placing of debt with unsophisticated
investors will be actively discouraged by the government agency
procuring the infrastructure; senior debt providers; rating agencies;
or regulators like ASIC. Perhaps the place to start looking at bond
the project will be fully constructed, the operators will have proven
themselves and the project should be on a steady path for the
remaining operating term.
In the meantime, the latest projects inVictoria indicate that there
Link (a 25-kilometre road link between EastLink in Carrum Downs
and the Mornington Peninsula Freeway in Mount Martha) being
completely bank-debt funded, and the Victorian Desalination Plant
being bank-debt funded, subject to government support initiatives
like an underwriting of the syndication of the debt facilities by the
that bank underwriting without government support is available for
projects not in excess of $1 billion. For larger projects in excess of
$1 billion, it is positive to note that the State underwritten portion
of the syndication of the Victorian Desalination Plant debt was
placed within two months of a three-month syndication process,
and the State's support is no longer required.
State underwriting or some other form of government
nervous to underwrite amounts in excess of $300 million, and
the management of large bank syndicates during the negotiation
bidding for the New Royal Adelaide Hospital (with a capital
component of $2 billion), and Stage 1 of the Sydney Metro (with
a capital component of $3 billion) will be able to fully fund
their bids without the assistance of government support. Market
capacity would become even more acutely felt if the $1.7 billion
Gold Coast Rapid Transit rail project and the $1 billion Parkville
at a similar time.
With the bond market remaining in the doldrums, it is suspected
that state funding will remain in demand for the rest of this year,
although it is likely that in each instance the funding shortfall
on bid submission will be taken up by the unsuccessful bidder's
bodes well for PPPs in general and sends a clear message to the
markets that there is an appetite for PPP debt. Hopefully the state
and federal governments in Australia agree.
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