Korean toll road marks latest investment for Macquarie’s MKIF

The acquisition of the 15.3km toll road includes a minimum guarantee cash yield for MIRA’s listed fund for the remaining 27-year concession term.

Macquarie Infrastructure and Real Assets has agreed to invest in Busan New Port the Second Rear Road project, a 15.3km toll road that connects Busan New Port with major Korean cities.

MIRA is making the investment through Macquarie Korea Infrastructure Fund, a listed vehicle, and as of 30 July had a market capitalisation of around 3.9 trillion won ($3.3 billion; €2.8 billion). MKIF invests in equity as well as subordinated debt.

MIRA will be investing a total of 110.7 billion won for 47.6 percent of equity (69.2 billion won) and 81 percent (69.2 billion won) of subordinated loans in the concessionaire operating BNP SSR under a 30-year contract that went into effect on 31 January 2017. MKIF will have the right to appoint the concessionaire’s chief executive during the operation period, Macquarie said in a statement.

In addition, BNP SSR has also secured 351.9 billion won from a Korean consortium led by KB Kookmin Bank, and nine Korean construction investors and lenders. The road project investment consists of 87.2 billion won of equity, 85.5 billion won of subordinated loans and 289.9 billion won of senior loans, according to the statement.

The investment entails refinancing the project with a view to improving its profitability, a source told Infrastructure Investor. The concessionaire recorded an operating loss of 10.1 billion won and 8.2 billion won in 2018 and 2019, respectively, according to a financial disclosure.

According to Macquarie, “the compound annual traffic growth rate of BNP SRR was 49 percent during the initial ramp-up period from the operation commencement in 2017 to 2019, and traffic volume is continuing to rise in 2020 despite the covid-19 outbreak in Korea”.

Under the terms of the original concession, financial investors have secured a minimum guarantee cash yield during the operation period. If the cash yield falls below 4.2 percent annually, the construction investors have agreed to provide up to 55 billion won in the form of a loan facility, according to the statement.

The source said that such conditions are included in some infrastructure deals to protect financial investors. A similar guarantee is included in the contract for the 13.4km Dongbuk light rail transit project in northeast Seoul, which is expected to start operation in 2025 and in which MKIF owns a 30 percent stake.

BNP SRR is a dual, two-lane expressway that connects the Busan New Port, in which MKIF first invested in 2008 and currently owns a 30 percent stake, to a number of major Korean cities. When it began operating in 2017, the Ministry of Land, Infrastructure and Transport, said it expected it to reduce travel distance and time from the port to the Seoul metropolitan area by around 18km and 34 minutes.

MKIF declined to comment for this story.

This story was edited on 14/10/20 to reflect that MKIF is not fully deployed and does not invest in senior debt.