Clemmed up

 

A few weeks ago our regular bank insider Deep T mentioned a few pieces of Australian infrastructure while discussing securitization.

Certainly securitization is a process which relies on transferring risk into the hands of the bondholders for it to be an effective and useful financing tool. However, risk transfer does not mean an abrogation of responsibility away from the sponsors, originators or servicers of the underlying cash flows. This single principle was the difference between the Australian RMBS markets and the US sub-prime securitizations. Nevertheless, elsewhere lurks our pieces of structured finance shame.

I’m referring initially to Sydney’s Cross City Tunnel white elephant, and the puzzling disaster of the Lane Cove Tunnel, both of which seem to be grossly over capitalized pieces of infrastructure. These projects were funded primarily by securitized bonds sold into the capital markets principally to Australian superfunds i.e. the savings of the ordinary Australian.

At the time of writing those articles we knew that he was also aware that the Clem 7 in Brisbane was on the path to suffer the same fate.  At the time we made the editorial decision not to post about it because the information was technically unsubstainiated.

But here we are 3 weeks later with another piece of Australian infrastructure that has a business and investment case that doesn’t meet reality falling into administration.

Lenders to RiverCity Motorway, the owner of Brisbane’s $3 billion Clem7 tunnel, are expected to call in receivers tomorrow, in the latest chapter of Australia’s poor record on private toll-road developments.

After teetering on the verge of collapse for months, RiverCity’s banking syndicate is finally expected to pull the pin and appoint KordaMentha as receivers and PPB as administrators tomorrow.

RiverCity went into a trading halt this afternoon before a meeting of its board tomorrow to hear whether bankers had agreed to a proposed standstill agreement on a $1.3 billion loan.

However, it is believed not all of the financiers have agreed to the standstill agreement.

In a striking parallel with Sydney’s failed Cross City and Lane Cove tunnels, the Brisbane tunnel has failed to attract anywhere near the motorists than it was forecast to since it was opened last year.

In November, the Clem7 averaged 31,000 vehicles each weekday and only 28,000 a day over seven days.

The figure is about half of the 60,000 vehicles per day that had been predicted once the tunnel was operating for six months.

RiverCity expected its daily traffic levels to significantly improve after the opening of the Airport Link, which will connect the Clem7 and the Brisbane Airport.

Brisbane ratepayers contributed $773 million to the construction of the Clem 7.

Lord Mayor Campbell Newman has repeatedly said ratepayers will not have to fork out more money to keep the city’s toll tunnel afloat.

I was going to put together some comments about this but after I read that article I noticed the first comment. I think I will leave it at that.

Its all too easy ,isnt it ? buy a “traffic volume forecast” ..(the more it costs the better … nothing under 1/2 million would be credible !) .. raise a few Billion on the basis of that …. pay yourself a few spare millions in fees and admin etc then politely retire when it all comes unstuck ….and the Govt (taxpayers) will pick up the resulting mess … and no one is any the wiser ….

I have had a very similar conversation with Deep T, so well said cynicalDGM if that is your real name.

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Comments

  1. Nice story ,You know you could have called it
    ROOSTER ROTH ROWE REWARDS RIDICULED RUNNING ROADWORK RETURN RESULTS RED

    But it would have be a pollution of R and probably attract an emissions tax…
    What with Jules new speeches n all..
    See ..Tony’s going to stop all the small talk when elected ,four cylinders,buses trains,and in making trips across our center by car or to be flown, mandatory for all yearly…young children may get spared along with local Air-Trains ,if ‘Turns can sell enough for ‘hock to net balance ,the poor by tunneling like Trevor..Tantalizing isn’t it ..
    All being ,Transformed To Tony Time Tourism Tuition Teaching Tax Takes Travelers ..and more T than we need and another act of pollution..no-doubt we’ll pay for ,Tomorrow …Till
    cheers JR

  2. I worked for an Australian transport company that was involved in a leveraged buyout by some bankers (abn ambro).

    It was very similar to the toll roads and all other leveraged buyouts in the mid 00’s……very optimistic projections of revenue and earnings were made. Those with common sense realised the debt incured in the buyout was always going to make these business cash flow negative, but the deals got done anyway.

    Where is the ACC or Asic, are they doind audits? Those bankers walked away with millions in fees by fleecing the super funds.

  3. It gets better: there are 2 more projects that will probably end up in administration muddle – the Airport Link and the Toowong to Kelvin Grove Northern Link Tunnel (delayed due to recent floods?). Along with the White Elephant Rail Service, aka AirTrain, Qld got it covered – just add ‘folly debt’.