Construction of the highway is part of the US$3.2bn 34 year privately financed build-own-operate-and-transfer (BOOT) concession awarded in October 1995 by Victoria’s state government to Transurban CityLink. Transurban will operate the highway through the 34 year concession period and raised the necessary working capital through a public share issue in March 1996 and domestic and international commercial loans.
The US$1.4bn contract to the Transfield Obayashi (TO) JV is to design and build the 22km long freeway and install all the necessary equipment and systems to operate a totally electronically controlled toll.
As a privately financed BOOT enterprise, Transurban and its shareholders have been largely protected from construction and remedial work costs and delays. Risks of project overruns are essentially shouldered by TOJV via its design+build contract. This is reflected in the health of the stock in Transurban. From an issue price of US$500for a parcel of shares in Transurban in March 1996, the same parcel reached a peak in late 1999 of about US$2150
After the Infrastructure bonds matured in December 1999, each original stapled security was transferred and is now traded as 500 new stapled securities. A 10%/year tax free coupon or dividend paid to shareholders in quarterly installments, the internal rate of return for the life of the project, is a generous 19%. Initially, Transurban was sponsored, along with others, by Transfield Pty Ltd and Obayashi Corporation, each company retaining an individual shareholder’s equity of about 10% in Transurban at the time of the flotation. All shares in Transurban expire in 2034 at the end of the 34 year operating concession and the project reverts to public ownership.
While the design+build construction contract for CityLink has had difficulties, the success of the Transurban BOOT structure in shielding the Victoria state government from the initial cost, as well as cost overruns and delays associated with construction of this vital infrastructure, may well be employed again for procurement of future state highway projects. Melbourne needs more highway construction to handle increased traffic volumes in the next five to ten years and preliminary plans do include tunnels as the only possible route through various suburbs.
