ABN AMRO seeds second infrastructure trust

ABN AMRO Australia has acquired a stake in Connector Motorways Group which operates the new Lane Cove Tunnel and Falcon Street Gateway tollways and is partly owned by Cheung Kong Infrastructure (CKI).

The bank plans to inject the asset into a newly created infrastructure trust that will be offered to institutional investors later this year.

The amount paid for the 14.9% stake was not disclosed, though the tunnel and road project cost around $1.1 billion to build and CKI paid $239 million for its 40% share of the tunnel in 2004.

ABN AMRO has acquired the stake directly from CKI as the Hong Kong developer backed by Li Ka-Shing looks to offload about half of its interest in the asset. CKI hasnÆt stated publicly why it is selling out of the tunnel, which only opened to motorists last weekend, but the company has been re-evaluating its Australian infrastructure assets since it lost A$100 million on its 50% interest in another project called the Cross City Tunnel. The Cross City Tunnel runs under SydneyÆs CBD and was opened ahead of schedule in June 2005. However, the road failed to meet projected revenues and the business was placed into receivership in late December 2006 with debts of about A$560 million.

ABN AMRO says its investment in Connector Motorways is logical given its close relationship with the Lane Cove project. ôABN AMRO was a member and financial adviser to the consortium that won the right to build and operate the tunnel in 2001,ö explains Gary Simon, head of the bankÆs investments group. ôWe know the project intimately and have done a lot of due diligence on the traffic numbers, so when the opportunity emerged to make an investment, it made sense for us to look at it.ö

The stake will be injected into a new unlisted fund called the Diversified Infrastructure Trust, says Simon, announcing the establishment of the fund yesterday. ôThe trust provides us with an appropriate vehicle to purchase equity in projects which carry a certain amount of market, price or patronage risk,ö says Simon. ôIt will invest in things like roads, tunnels, utilities and energy projects.ö Units in the trust will be offered to institutional investors later in the year, with ABN AMRO hoping to raise between A$400 million and A$500 million.

The other asset being injected into the trust is a 5.9% holding in RiverCity Motorway Group which is currently constructing the North South Bypass tunnel in Brisbane, another project financed and advised by ABN AMRO. That stake is worth around A$15.5 million based on RiverCityÆs current share price on the Australian stock exchange. The companyÆs shares have experienced a recent turnaround in performance having dropped from a high of 45 cents per share in December last year to as low of 35 cents a few weeks ago. On Thursday they were trading at 37 cents per share.

Simon says the trustÆs managers will work closely with the bankÆs project origination team to source assets. ôIn the past, ABN AMRO has been a large originator of project finance but we have always sold all of the debt and equity into the capital markets. Now we will have the opportunity to retain some equity.ö Simon says the ability to hold equity will improve ABN AMROÆs chances when it bids for large government-sponsored projects. ôThese days, clients and co-investors want to see you participating as well as originating.ö

Though Simon stresses the trustÆs independence. ôThe managers of the trust will make the final decision on what they invest in based on what is right for the end investor.ö

Last year, ABN AMRO launched another fund called the Social Infrastructure Trust which is investing in public-private partnership (PPP) developments like hospitals and public buildings. The fund closed in December with A$45 million in equity committed by institutional investors. It currently owns four assets worth a total of A$700 million. ABN AMRO is a large player in AustraliaÆs PPP sector.