Cross City Tunnel in Sydney sold by receivers to ABN AMRO & Leighton for $590m

The bankrupt Sydney Australia Cross City Tunnel concession is being bought from receivers for $590m (A$700m) paying off the lenders in full and providing a small amount to the unhappy equity holders in Hong Kong and Germany. The 2.1km (1.3mi) 2x2 lanes underland toll tunnel providing a quick ride into central Sydney from the inner eastern suburbs opened in August 2005 and is carrying a very respectable 35k vehicles/day.

However the business plan on which the initial concession was based used botched traffic and revenue studies suggesting a fantastic 90k veh/day by the end of the first year. (The Holland Tunnel in New York City after 80 years has reached that volume and it taps the New Jersey Turnpike at one end and lower Manhattan at the other!)

35k veh/day taps a substantial proportion of the traffic that used to travel on William Street the 6 lane surface signalized arterial above that was previously the main drag to the east. Traffic forecasters assumed quite wrongly, it turns out, that the tunnel would attract traffic from parallel routes miles on either side of William Street.

After opening and traffic in the 20k to 30k range managers played with no tolls, half toll rates and various discounts but the revenue wasn't there to service debt longterm. So the 16 bank syndicate of lenders stepped in Dec 27 2006 appointing KordaMentha, turnaround and bankrupcy managers to run the tunnel and organize a sale.

Being private the company has not published revenues but based on 35k/day and published toll rates annual revenues must be around $30m, so the purchase price is a reasonable ratio of just under 20x revenue. The eastern suburbs served by the tunnel are wealthy and developed so the revenue is likely to be stable but traffic growth is likely to be small.

A Hong Kong based toll operator Cheung Kong Infrastructure had 50% of the equity and Bilfinger Berger the large German builder and infrastructure operator owned 20%. The receivers managed to continue to service debt, and traffic operations were unaffected.

ABN AMRO a Holland based international investment bank is putting up 94% or $555m of the $590m purchase price on the 35 year tunnel concession, and Leighton Holdings, a large Australian building and toll group the remaining $35m. Leighton is now 55% owned by Germany based Hochtief. ABM AMRO recently bought a 15% stake in the recently opened Lane Cove tunnel concession in Sydney's northern suburbs from Cheung Kong.

Tolls

Tolls for the length of the tunnel which helps avoid 16 traffic signals one direction and 18 in the other are about $3 (A$3.50) for cars and double that for vehicles higher than 2.8m (9.2ft) or longer than 12.5m (41ft), while tolls to an intermediate exit are $1.35 (A$1.60).

Tolling is all-electronic at full highway speed by using a Sydneywide interoperable transponder or by video toll and payment online or by telephone. There are video toll accounts and one-off 1 to 7 day passes in which the license plate number is registered as paid, and the car trip generates a camera captured image of the license plate during passage.

Politics and media frenzies

The tunnel was the subject of a huge media frenzy when it opened. These highlighted long established plans to reduce surface road capacity and bogus claims of underhand deals by the state roads authority.

Politicians have jumped into fray to exploit the issue. They still do. The state premier this week told the operators they should drop toll rates. It would he said be a "sign of goodwill."

The $590m purchase price probably falls about $150m short of the investments made in the tunnel plus accumulated losses. That's our sense but we'll try get a better number and repost that here.

The concession was one of many done under a Labor (Americans, read Democrat) state government of New South Wales, so the state's conservatives (called there Liberals) have condemned it as "a fiasco" and in the words of the state opposition leader Barry O'Farrell this week "crook from the start."

We expect O'Farrell to receive an invitation to testify before James Oberstar's US House Transportation Committee. (In American the word's "crooked" O'Farrell)

see http://www.crosscity.com.au

TOLLROADSnews 2007-06-21