Creditors call time on Lane Cove Tunnel

The A$1.6bn project has become the third major Australian infrastructure PPP to collapse over the last ten years having been placed in receivership. Bond insurer MBIA, on behalf of the project’s bondholders, took the decision after the Connector Motorways consortium failed to pay interest on A$1.16 billion of outstanding debt.

Sydney’s Lane Cove Tunnel has been placed in receivership, earning the dubious distinction of being Australia’s third major infrastructure public-private partnership to collapse over the last ten years.

Lane Cove: third PPP to
collapse in 10 years.

The project – which includes a 3.6 kilometre twin-tunnel tolled motorway and two tolled ramps – had been underperforming practically since it opened in March 2007, with daily traffic numbers averaging half of the expected 100,000 vehicles per day. A traffic high of over 62,000 vehicles was reached this November. But that number still compares unfavourably with the 134,000 vehicles per day expected in 2011, according to the original estimates.

Bond insurer MBIA, acting on behalf of the project’s creditors, terminated a “standstill” agreement that had allowed the concessionaire to operate over the last two years. Receivers KordaMentha said MBIA ended the agreement after the Connector Motorways consortium failed to fully pay interest on A$1.16 billion (€749 million; $1 billion) of outstanding debt. MBIA covered the difference on what the consortium was unable to pay.

KordaMentha said it wants to put the tunnel’s assets on a firm financial footing and determine the best option for the tunnel’s future, including a sale, which it sees as the likelier option. Goldman Sachs JBWere is said to be managing the sale which could take place as early as mid-February, according to local media reports.

Analysts quoted in the Australian press expect the assets to sell for between A$400 million and A$600 million, a significant discount from their original A$1.6 billion price-tag. But the receivers have dismissed these estimates as speculation. Potential buyers could include the likes of Transurban, which operates several roads connecting to the tunnel, or infrastructure funds such as CP2, which is Transurban’s largest shareholder.

Leighton Holdings, Mirvac and Cheung Kong Infrastructure, the fund owned by Asia’s wealthiest man, Li Ka-shing, are the owners of the Connect Motorways consortium. They have already written down their investments in the Lane Cove Tunnel.

The collapse of the Lane Cove Tunnel follows the debacle of the Cross City Tunnel PPP in late 2006. That project was sold in September 2007 for A$680 million – well below its original cost of almost A$1 billion. Before that, the A$700 million Airport Link PPP collapsed just six months after it started operating in 2000.