QIC unit buys Brisbane's Clem 7

A domestic investor has bought Brisbane’s Clem7 Tunnel out of receivership, just after Sydney’s Cross City Tunnel went into voluntary administration.

The long-rumoured sale of Brisbane’s failed Clem Jones (Clem7) Tunnel has finally been sealed, with a domestic bidder – Queensland Motorways (QM) – outbidding international infrastructure investors like UBS Infrastructure and APG with a A$618 million (€429 million; $583 million) offer, according to a QM statement.

Clem7 was put into receivership in February 2011, when previous owner RiverCity Motorway saw traffic through the tunnel decline drastically and still had to pay back about A$1.2 billion in loans, according to media reports. The company itself was suspended from trading on the Australian Stock Exchange.

QM’s A$618 million offer did not exceed those of international investors by much, Infrastructure Investor understands. One of the three consortia made an offer of A$610 million. However, all offers were only a fraction of the A$3 billion it cost RiverCity to construct the 6.8-kilometre tunnel running under the Brisbane River, according to media reports.

The A$618 million deal size includes A$33 million in taxes and costs, and “represents the value of the assets and not the original construction cost,” according to the statement. Liabilities and litigation will remain with RiverCity. The transaction should be completed in about three to four months.

The addition of Clem7 will expand QM’s already large network of toll roads in Brisbane, which include Gateway and Logan motorways. QM, which is owned by Queensland sovereign wealth fund Queensland Investment Corporation, also has several toll roads under construction that are expected to be completed between 2013 and 2015. The toll revenue from Clem7 is expected to comprise about 10 percent of QM’s total toll revenue.

“This deal positions Queensland Motorways to further consolidate the Brisbane toll road network in the future and will provide us with a platform to work with Brisbane City Council and the State Government to improve the Brisbane road network over the longer term,” QM chief executive Brendan Bourke said in the statement. “The change in ownership will be seamless for motorists and will represent a move towards a one stop shop for customers – making life easier for Brisbane motorists.”

Just a few weeks prior, the owners of Sydney’s Cross City Tunnel concession decided to put the company into administration. The consortium that owns the tunnel includes the Royal Bank of Scotland, EISER Infrastructure Partners and Leighton Contractors, which bought the tunnel out of receivership in 2007. In a statement, the consortium blamed changing government traffic policies for the tunnel’s financial issues.

“While the business remains cashflow positive, the legal action [of the New South Wales government] has had significant impact coming in the midst of the required refinancing process,” chairman of the board Ed Sandrejko said in the statement.

Failed tollways are a common story in Australia, because traffic has often fallen as much as 80 percent below predictions, according to an Australian government report. Even after six years, traffic is on average 19 percent below predictions, making investors continually struggle to make Australian toll roads profitable.