SESSION 11A
INVESTMENT IN
AUSTRALIAN
INFRASTRUCTUREGina Maio (AustralianSuper) &
Richard Buchanan, CTA (EY)
Agenda
1. Infrastructure Overview
2. Common structures
3. Q&A
Infrastructure Classes
Electricity
transmissionRoads Ports
Rail OthersElectricity
generationSocial
Defence Leap 2
ACT Courts Facility
Capital Metro
Moorebank Intermodal
Sunshine Coast Hospital
Gold Coast Light Rail
Gold Coast Light Rail Stage 2
QLD Schools Project
New Generation Rollingstock
Royal Children's Hospital
Redevelopment
Toowoomba Bypass
Airport Link
Legacy Way
Clem 7
QML Sale
Cross River Rail
Darwin Prison
Wiri Prison
Hobsonville Point School
Transmission Gully
Auckland Prison
NZ Schools 2 PPP
Puhoi to Warkworth
NZ Schools 3 PPP
Palmer Wind Park
Auckland Harbour X
Auckland Light Rail
PPP transactions
Recent deals closed
PPPs in procurement
Potential PPPs
QEII Hospital Car Park
Mundaring Water Treatment Plant
Eastern Goldfields Prison
Perth Stadium
Schools PPP
2nd Schools PPP
Women’s Prison PPP
New Royal Adelaide Hospital
South Road Corridor
AdeLINK
Convention Centre
Northern Beaches Hospital PPP
NorthConnex
Sydney Metro North West
Sydney Light Rail
WestConnex
Moorebank Intermodal
Grafton Prison
Social Housing
Sydney Metro CSW
Parramatta Light Rail
New Stadium
Second Sydney Airport
Integrated Health
Partnerships
Bendigo Hospital
Ravenhall Prison
VCCC
Victorian Schools 2
Western Distributor
HCMT Rolling Stock PPP
Melbourne Metro
OSARS
PPP Projects Australia and New Zealand
Date Target Bidder Deal Description Status
Deal
Value
(A$m)
Implied
Enterprise
Value
May-16Canberra Data
Centres
HRL Morrison &
Co, Infratil
New Zealand Infrastructure manager HRL Morrison & Co, on behalf of Infratil Ltd and
Commonwealth Superannuation Corporation purchased Canberra Data Centres from
Quadrant Private Equity for $800m. Canberra Data Centres is a data centre operator
and manager located in Canberra, ACT, that provides data systems and security to
government and commercial clients.
Closing 800 800
Feb-16Mortlake Terminal
Station AusNet Services
AUSNET Services has agreed to buy Mortlake Terminal Station in Western Victoria,
Australia from Origin Energy for A$110 million. The terminal station connects Origin's
Mortlake power plant to Victoria's electricity network, and is already operated and
maintained by AusNet.
Closing 110 110
Dec-15 Pacific Hydro* China State Power
China's State Power Investment Corp purchased wind and hydro renewable energy
business Pacific Hydro, from IFM for a purchase price of approximately $3 billion
AUD, including debt. Pacific Hydro owns 900 megawatts of generation capacity across
19 hydropower dams and wind farms in Australia, Chile and Brazil, as well as a
significant pipeline of wind projects and potential wind sites in Australia. Completion
is anticipated in January 2016.
Closing 3,000 3,000
Dec-15AirportLinkM7*
(BrisConnections)Transurban
Transurban Group acquired Brisbane toll road AirportLinkM7 from BrisConnections
(in receivership) for $1.87 billion, further expanding Transurban’s toll road portfolio,
which already comprises five Brisbane toll roads. Transurban has recently
undertaken a renounceable rights issue of approximately $1b to fund the acquisition,
reduce overall debt and to pursue further potential transactions.
Closing 1,870 1,870
Dec-15
Worsley Multi-Fuel
Cogeneration
(Worsley Cogen)
Whitehelm
Capital
The General Electric (GE) Energy Financial Services sold 49.9 percent of its stake in
Worsley Multi-Fuel Cogeneration (Worsley Cogen) power plant to Whitehelm
Capital.
Known as Worsley Cogen, the power plant has an ongoing power-supply contract
with leading alumina refinery, Worsley Alumina of BHP Billiton. The 25-year “take or
pay” contract with Worsley Alumina has the tariff pegged to inflation. The dual unit
multi-fuel cogeneration plant has a capacity of 550 tons per hour (tph) of steam and
104MW of electricity.
Closing 1,200 1,200
Nov-15 TransGrid*
Hastings Funds
Management,
CDPQ, Abu Dhabi
Investment
Authority, Kuwait
Investment
Authority, Spark
Infrastructure
99-year lease of the New South Wales high-voltage electricity transmission asset
TransGrid from the New South Wales Government. The successful consortium
comprised Australian infrastructure funds Hastings Funds Management (20% stake)
and Spark Infrastructure (15% stake), the Canadian pension fund Caisse de dépôt et
placement du Québec (25% stake), and the Abu Dhabi Investment Authority (20%
stake) and the Kuwait Investment Authority (20% stake).
The NSW Government has indicated that funds from the sale will be reinvested a
number of NSW infrastructure projects as a part of the government’s “Rebuilding
NSW” plan.
Closed 10,258 10,258
Recent infrastructure transactions
Date Target Bidder(s) Deal Description Status
Deal
Value
(A$m)
Implied
Enterprise
Value
Oct.- 15 Victorian Schools PPP
Learning
Communities
Victoria
The Victorian Coalition Government launched a competitive tender process in 2014
for a bundled school PPP.
The proposed construction of 12 new schools in growth areas of the state was
announced as part of the 2014-15 Victorian Budget. Eleven of the 12 schools will be
constructed under a public private partnership contract which will include a long-
term facilities management contract.
Closed 291 291
Oct.- 15 WA Schools PPP EduWest Partners
Eight public schools are to be built under a 25 year DBFOM.
Four public primary schools and four public secondary schools have been earmarked
for development under the PPP model, similar to those ran in Queensland, New South
Wales, and Victoria.
Closed 322 322
Oct-15 Port of Darwin*Landbridge
Group
Chinese petrochemicals and port operator Landbridge Group has acquired the Port of
Darwin under a 99 year concession for A$506 million, representing a multiple of c.25
times EBITDA for an 80% stake in the port. The Northern Territory government will
hold the remaining 20% stake until Landbridge finds a suitable Australian buyer.
Landbridge has also committed to significant capital expenditure in the port as part of
the sales agreement, with A$35 million earmarked for spending over the next five
years and A$200 million over the next 25 years.
Closing 506 506
Oct-15 Iona Gas Plant
Queensland
Investment
Corporation
QIC has signed a binding agreement to acquire the Iona gas storage facility for $1.78
billion from EnergyAustralia.
Financial close is expected to occur before the end of the year.
Closing 1,780 1,780
Sep-15Macarthur wind
project
H.R.L. Morrison &
Co
H.R.L. has acquired AGL’s 50% stake in the Macarthur wind project. As part of the
agreement, AGL will continue to operate the wind farm and will retain the rights for
the energy produced until 2038. AGL is the offtaker under a 25-year power purchase
agreement (PPA), which is priced at A$79 per MWh. Malakoff owns the remaining
50% stake in the project having acquired this from Meridian in 2013 for A$140m. The
420MW has been fully operational since January 2013 and is located in Victoria,
Australia.
Closed 532 1,064
Aug-15Toowoomba Second
range Crossing Nexus
The project is a proposed 41km road bypass route to the north of Toowoomba. Upon
completion, the TSRC will form part of the National Land Transport Network,
connecting the Gore Highway at Athol in the west, to the Warrego Highway near
Helidon in the east, via Charlton.
The project will be delivered through one contractual package comprising design,
construct, finance, operation and maintenance (O&M) and toll collection. The O&M
and toll collection is expected to be for a period of 25 years following successful
commissioning of the TSRC.
Closed 1600
Recent infrastructure transactions
Recent infrastructure transactions (cont’d)
Date Target Bidder Deal Description Status
Deal
Value
(A$m)
Implied
Enterprise
Value
Aug-15Port Hedland
International Airport
AMP Capital
and
Infrastructure
Capital Group
The Port Hedland council awarded the 50-year lease for Port Headland
International Airport to AMP Capital and Infrastructure Capital Group in
August 2015 for $205m. The winning bidders will pay the Port Hedland
council A$165 million upfront and have pledged to invest an additional A$40
million to rehabilitate the airport over the course of the next five years.
Closed 205 205
Aug-15 Asciano Limited
Brookfield
Infrastructure
Partners L.P.
and
Qube Holdings
(Competing
bids)
A consortium led by Brookfield Infrastructure Partners L.P, a dual listed
Canadian electric transmission systems and infrastructure holding company,
has proposed to acquire Asciano Ltd, the Australia-listed national rail freight
and ports operator. The transaction is currently proposed to be conducted
via a cash plus share scheme of arrangement, and values the entire share
capital of Asciano Ltd at AUD 8.918bn (approx. USD 6.59bn, per USD on 16
August), representing a 12.8% premium to the share price on 14 August.
A consortium led by Qube Holdings made a competing provisional takeover
proposal worth $9.25 a share for the group on November 9, representing a
similar price as the Brookfield consortium offer. Whilst the Asciano board
have officially recommended the Brookfield proposal (in the absence of any
other official offer), the Asciano board have allowed Qube to undertake due
diligence.
The Australian Competition and Consumer Commission is due on February
18 to make separate rulings on these competing bids. Prior to the release of
these rulings, it has been reported that both consortiums are expected to
lodge all cash offers. Brookfield have also been reported to be considering
the divestment of its WA rail assets, or the Pacific National business of
Asciano in order to allay anti-competitive concerns expressed by the ACCC.
Pending
ACCC
ruling and
Asciano
board
decision.
8,918 8,918
Jul-15
Energy
Developments
Limited
Duet Group
Duet Group, the Australia-listed energy company, agreed to acquire the
entire share capital and merge with Energy Developments Ltd, the domestic
clean energy provider. Duet Group believes EDL is a strategic fit with the
company which provides long term, contracted energy infrastructure cash
flow and EDL's remote energy business is complementary to the group and
provides an attractive growth platform that enhance shareholders value.
Closed 1,381 1,360
Recent infrastructure transactions
Market insight – key players
Active Contractors, Operators, Investors
Why infrastructure?
• Income profile of assets
• Scale and portfolio asset allocation
• Yield in a low-interest environment
• Tax and the investment process
Why infrastructure?
Asset Class Amount
($billion)
%
Cash 170 13
Fixed income 280 21
Equity 648 48
Property 121 9
Infrastructure 63 5
Listed infrastructure 19
Australian unlisted
infrastructure
29
International unlisted
infrastructure
15
Other 53 4
Total investments 1,335 100
Source: APRA March quarter 2016
Asset allocation (funds with more than 4 members)
Highly competitive funding landscape
► Continual improvement:
► 20-25 active banks
► Banks are prepared to lend more
► ECAs very active – following local suppliers
► $5B+ of capacity for greenfield
► Commercial terms:
► Tenors of 7-10 years
► Margins trending down
► Gearing trending up
Debt M arket
► Unprecedented market interest
► Asset appetite:
► Brownfield economic infrastructure (including
patronage risk)
► Greenfield/PPP
► Brownfield PPP
► Main sources:
► Australian superannuation funds
► UK & European PPP investors
► Asian pension funds and trading houses
► North American pension funds
► Middle Eastern SWFs
► Equity pricing on downward trend
Equity M arket
Developments in the debt market
0
50
100
150
200
250
300
350
400
450
Basis
po
ints
Operating Margin Construction Margin
Debt pricing
competitive
Tax treatment comparison
Investor
T ype
Tax
treatment
of cash flows
Complying Australian
superannuation fund
M anaged investment trust
(M IT)
Domestic trade buyer
(company)
Returns of capital <
cost base
Reduction in cost base of
units (CGT event E4)
Reduction in cost base of
units (CGT event E4)
Reduction in cost base of
units (CGT event E4) but
complex
Interest from
shareholder loans
15% IWT at 10% 30%
Franked
distributions
15% Exempt 30%
Trust income 15% 15% 30%
Returns of capital >
Cost base/CGT on
exit
10% 15% 30%
Unfranked
dividends
15% DWT at 30% 30%
Copyright © 2014 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation
Tax treatment comparison
Investor
T ype
Tax
treatment
of cash flows
Tax exempt foreign super
fund (FSF)
Sovereign wealth fund
(SWF)Foreign trade buyer
Returns of capital <
cost base
Reduction in cost base of
units (CGT event E4)
Exempt Reduction in cost base of
units (CGT event E4)
Interest from
shareholder loans
Exempt Exempt Subject to IWT at 10%
Franked
distributions
Exempt Exempt Exempt
Trust income
► Direct Holding (45%)
► Investment through a MIT
(15%)
Exempt 30%
Returns of capital >
Cost base/ CGT on
exit
► Direct Holding (45%),
► Investment through a MIT
(15%) if TAP
Exempt 30%
Unfranked
dividends
Exempt Exempt DWT at 30%
Copyright © 2014 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation
Stapled Structure - Overview
Hold Co
Property
Assets
Stapled instrument
Hold Trust
Asset
Trust
Ops Co
Operating
Assets
Sub Lease
Land
Finance Co
Senior Debt
Loan
Key considerations
► Hold Trust & Asset Trust
► Flow through
► MIT & AMIT
► Third party and
investor financing
► Thin cap
► Hold Co & Op Co
► Operational activities
► Post-tax distributions
to investors
► Use of operating
trusts in some stapled
structures – changes
to section 102MD
Loan
Aus
Super Fund
Tax exempt
foreign
pension fund
Sovereign
Fund
Stapled Structure – ATO compliance focus
Aus
Super Fund
Hold Co
Property
Assets
Hold Trust
Asset
Trust
Ops Co
Operating
Assets
Sub Lease
Land
Finance Co
Senior Debt
Loan
► Accepted use of stapled
structure provided that
ATO methodology followed
in respect of:
► Pricing of cross-
staple lease and loan
► Allocation of
purchase price
between Hold Trust &
Hold Co
► Why does this matter for
super funds?
► Effective tax rate for
underlying entities
► Interaction with
consortium partners
& FIRB
► Impact on asset
valuation (and unit
pricing)
► Tax risk profile of
consortium entities
Loan
Tax exempt
foreign
pension fund
Sovereign
Fund
Stapled instrument
Securitised Lease / Licence Structure
Project
Trust
State
State construction payment
Investors
Equity contribution
ContractorConstruction cost
Licence payments over time
Licence receivables purchase price
Statecontribution
Key considerations
► Common structure for
social infrastructure
projects where the State
wants to make a
contribution to the
project
► Majority of the
construction cost is
deductible over the
project life through the
deductions for the
licence payments
► Impact on returns to
investors would need to
be modelled
Finance Co
Senior Banks
Project
Trust
Loan
Operations and
Maintenance
Q&A
Thank youPlease complete your
evaluation forms and return
them to the registration desk
© Author’s name, Company 2016
Disclaimer: The material and opinions in this paper are those of the author and not those of The Tax Institute. The Tax
Institute did not review the contents of this presentation and does not have any view as to its accuracy. The material and
opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries
in making any decisions concerning their own interests.