AUSTRALIAN TOLL MULTINATIONAL:Macquarie bank becomes Big Tollster

These include:

• 50% of Midland Expressway which has a concession and permits to build the Birmingham North Relief Road, the first large toll highway in the UK (financial close by Dec 00)

• the management contract on Dartford toll bridge and tunnel on the M25 beltway around London (in operation several years)

• 25% of the Vasco da Gama bridge in Lisbon Portugal, a second harbor crossing

• 50% of the York link, a shadow toll road in the north of England

• 57% of M4 motorway in Sydney, the first major Australian toll road which serves the western suburbs and has just completed widening to 2x3-lanes

The European toll properties (plus interests in an incinerator, a hospital and defense buildings) are being bought by MIG from the troubled Anglo-Norwegian company Kvaerner for about $150m. The controlling share in the Sydney M4 will cost about $100m.

The MIG group starts with 50% interest in the M5 a southwest Sydney radial, 68% of the Eastern Distributor (Sydney Airport-downtown), 8% of the M2 Hills Motorway in northwestern Sydney and 11% of the Melbourne CityLink, as well as having two major energy investments. It is the largest owner of Australian toll roads.

In eastern Germany MIG is in partnership with Bouygues to build a toll tunnel under the harbor of Rostok, north of Berlin, Germany’s first toll concession.

All but one of the group’s tollroads are estimated by an Australian financial analyst to yield double digit returns on purchase price: Hills Motorway 17.5%, Eastern Distributor 16.2%. The analyst says Rostok will yield 16% and the Kvaerner purchase 12.5%. Shares in Transurban City Link are presently estimated to provide 6.2% return.

Macquarie has an office of four in London to cover its European investments and a similar sized office in Toronto for north America. It is actively looking for toll roads to buy in the US and Canada. It was the lead financing arm of one of the unsuccessful teams bidding for 407-ETR in Toronto. MIG officers are looking all over the US for possible toll road developments. They say they are not interested in s6320 Not-For-Profit toll road development projects, and want simple for-profit equity ownership in order to build longterm toll businesses.

The associate manager of Macquarie North America Jim Miller told us “We think it is a misconception that potential yields of toll roads in the US are too low to justify straight for-profit taxable investments. We aren’t interested in seeking tax exemptions or in short-term finance-build. We’d like to invest.”

Miller said there are plenty of local groups with more expertise in public-private partnerships and other complex development arrangements with state DOTs involving tax-exemption.

“We’re not going to attempt to compete in that arena. We are looking to own, or take a major share in the ownership of toll facilities. We are out to manage and to develop toll properties as ongoing for-profit businesses. That’s what we have experience in and what we want to build upon.”

MIG’s pitch is that even though tax-exempt financing has a tax advantage, it carries some handicaps. Says Miller: “Tax exemption usually limits the amount of capital that can be raised, because of coverage ratios and bonding capacity. And it is often slow to assemble and requires considerable legal expense. We can raise more capital and cover full value with straight for-profit capital raised in the general capital markets. We are more flexible that the banks that have to work within the limited public financing markets, and that have to be governed by complex IRS requirements.”

The Australians are looking for state and local government toll properties in the US that might be up for privatization. By that they mean investor ownership and control. Capitalism. Miller says that one so-called “privatization” project they recently discussed turned out to be nothing more than an old-fashioned contract to build! (Contact J Miller 416 594 0200)