Victoria is expected to announce the winning bid for its groundbreaking AUD 1.8bn (USD 1.4bn) Melbourne suburban roads PPP by the end of November.
But a market source familiar with the matter said a preferred bidder would be chosen this week for the Western Suburbs Roads Package (WSRP), formerly known as the Outer Suburban Arterial Roads project, or OSARs.
Separate sources with direct knowledge of the matter said it would be another month before the actual announcement is made.
It is understood at least one of the bid groups – Plenary and Cintra’s Netflow consortium – has tapped US life insurance companies via the US Private Placement market to finance its bid.
The RFP specifically asks for long-term bond financing to be in place. This is due to concern about the small nature of the Australian bank market and potential refinancing risk a source explained. Plenary declined to comment.
Bank sources say bond financing in Australia at the bid stage for a PPP is unheard of since the financial crisis, although infrastructure funds are increasingly lenders in bids to projects.
At the bid stage, short-term bank debt can usually be tapped at more competitive rates in Australia and then refinanced on the bond markets.
However, global insurance and pension companies are keen to lend to infrastructure projects and banks say insurers are seeking ways to invest in senior debt at the bid stage in Australia.
In August 2016, a Plenary-led consortium financed its bid for the University of California Merced campus expansion PPP with a USD 660m private placement tapping large US life insurers, as reported. The placement matures in 2054.
Some bankers without direct knowledge of the transaction argued the borrowers will likely need to pay more for bond finance than bank debt and the state would bear the higher costs in the terms they get from bidders, especially as the WSRP PPP has some greenfield aspects to it. They argue banks are much more able to manage interest payments during construction phases, as they can drawdown bank loans when they need the funds.
The WSRP, however, is largely brownfield as it involves upgrades and maintenance of suburban arterial roads over a 20 year period, although some advisers point out it is a relatively risky brownfield project because bidders can’t be sure what they will find under aging road networks.
The WSRP is the first PPP for the upgrade and maintenance of arterial roads in Australia and there are plans for another two similar projects around Melbourne. Other states are also understood to be considering the approach.
It includes 30km of upgrades and duplication of eight roads around suburbs including Truganina, Laverton and Ravenhall, including bridges and pedestrian overpasses.
Initial upgrades to the roads are to start within three to six months of financial close followed by design, financing and construction and ongoing maintenance of 750km of roads over a 20-year period from the end of completion of upgrades, with an availability payment over that period.
There may also be the chance to design and construct two more roads in Melbourne’s northern suburbs around South Morang.
Shortlisted consortia are: Netflow OSARs consortium, including Plenary and Cintra; Western Improvement Network which includes CIMIC’s CPB Contractors and Pacific Partnerships, Ventia, DIF Management Australia, and Marubeni Corporation; and Western Roads Partnership including Lendlease and its finance arm Capella Capital.