CPPIB, QIC back $2.3b Sydney infrastructure project

CPPIB said in a statement that it is contributing A$525 million and will take a 25% ownership interest in the project. Transurban is putting in A$1.05 billion, while the New South Wales and federal governments have agreed to invest A$800 million.

NorthConnex is a nine-kilometer, twin-tunnel project that will connect the northern suburbs with the Sydney Orbital Network of roads that circles the city. It will be the longest road tunnel in Australia and is expected to significantly reduce freight traffic on existing roads. Construction will begin in early 2015 and is expected to be completed in 2019.

NorthConnex and the Westlink M7 toll road - which is part of the Sydney Orbital Network - will be owned by an umbrella entity known as North West Roads Group. Transurban said in filing that it will hold a 50% interest in the group. The concession on NorthConnex will run until 2048; the M7 concession has been extended to the same date and will also be enhanced.

CPPIB owns a 25% interest in the M7 as a result of its acquisition of Intoll Group in 2010.

By packaging the existing M7 concession with NorthConnex project - essentially allowing North West Roads to rely primarily on the toll revenue from the M7 - the greenfield risk is reduced. While there is significant investor appetite in brownfield infrastructure in Australia, it has proved difficult to generate interest in new builds.

Several tunnel and toll road public-private partnerships from the early to mid-2000s were undone by optimistic forecasting. Notably, in September 2013 Sydney's Cross City Tunnel entered voluntary administration after failing to refinance its debt. The asset launched in 2005, supported by A$680 million in debt and equity financing, but slipped into insolvency a year later due to low traffic volumes.

Combining NorthConnex and the M7 - combining greenfield and brownfield - brings down the project risk.

"Our involvement in the transaction leverages our capabilities in the road sector and our ability to be a collaborative partner to governments. The Westlink M7 shareholders have been able to deliver NorthConnex through an innovative and unique financing structure," said Ross Israel, head of global infrastructure at QIC, in a statement.

The Australian government is looking for innovative ways to support a range of new infrastructure projects. Another popular method is privatizing brownfield assets and using the proceeds to support greenfield developments.

Last year the New South Wales government sold a 98-year lease on Port of Newcastle to Hastings Fund Management - which has strong ties to Australian superannuation funds - and China Merchants Group. The bulk of the A$1.75 billion proceeds will be recycled into new projects, such as the redevelopment of Newcastle's central business district and the A$10 billion WestConnex highway.

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• Topics
• Infrastructure
• Infrastructure
• Australasia
• Australia
• Infrastructure
• QIC
• CPPIB
• Growth capital
• Transportation