BrisConnections ceases trading Oz stock exchange - debt of AirportLinkM7 exceeds value
By Peter Samuel
2012-11-12: BrisConnections (BCS) the concession operator of a toll tunnelway in Brisbane Australia has asked the Australian Stock Exchange to suspend trading in its shares because its directors fear its value is less than its debt. Traffic on its AirportLinkM7 tunnelway has been under 40% of the level forecast by Arup, the British-based engineering firm and about 70% of that forecast by RBconsult Ltd - Robert Bain based in Kent England. (see NOTE at end)
Investors in several Australian toll projects have recently suffered serious losses due to greatly inflated traffic and revenue (T&R) forecasts, and there are shareholder and lender lawsuits against AECOM, Parsons Brinckerhoff and Booz Allen over earlier bankruptcies.
This time Arup may be the defendant.
Early recognition of big problem
BCS is unusual in how quickly the financial unsustainability of the toll concession was recognized.
AirportLinkM7 opened less than 16 weeks ago (July 25 2012.) Tolls began for those without a toll account 12 weeks ago (August 23 2012) while motorists with an account were able to continue to drive toll free.
Tolls were only put in place for all accounts three and a half weeks ago (October 18 2012.)
The company's statement to the Australian Stock Exchange today said "following analysis and in light of traffic levels (since) the introduction of tolls for all vehicles, the Board has determined today to enter into formal negotiations with its lenders and other key stakeholders regarding potential (financial) reconstruction options, taking into account that on present traffic levels and operating costs, the enterprise value may be less than the outstanding debt."
Two directors of eight resigned today also.
The company said November 2 it had engaged PPB as new T&R advisers to "look at current and anticipated traffic volumes, revenue, costs, forecast liquidity and BrisConnections' capital structure."
53k traffic vs Arup forecast of 140k
Traffic on the APLM7 has averaged 53k/day since full tolling 2012/10/18 versus 77k with tolling of non-account holders only in the first 17 days of the month. Arup forecast 140k/day on startup rising over 200k in 2014 and 250k by 2020. Based on the graph nearby RBconsult put the opening traffic with tolls at 80k rising to 100k in 2018.
BCS got a 45 year concession from the City of Brisbane in 2008 to finance build and operate a 6.7km, 4.1 miles tollroad between the downtown of Brisbane - Australia's third city - and its major Airport to the northeast. 5.7km, 3.5 miles is underground, in twin tunnels. About midway the facility has an interchange serving roads to the north. At the two ends it has connections to multiple roads requiring quite fancy tmps separations.
The tunnel way itself is a tight 2x2 lanes. It has some pull-off areas bunt not continuous shoulders. Posted speed limit is normally 80km/hr, 50mph, but variable speed signs allow 60km/hr and 40km/hr to be indicated.
Phase-in of tolls
Tolls are $2.50 for a car $5.00 for a light commercial vehicle and $10.50 for a heavy truck going the full length of the tunnelway. This is for a registered account with a transponder. Registered license plate and billing arrangements incur an 86c video matching fee and trip passes a charge of $2.94. No cash is collected on the facility. (All A$s, similar to US$)
Tolls for use of one of the half sections accessed or exited at the intermediate interchange are $2.00 base toll for cars.
These were described as a phase-in of full toll rates to apply from April 18 2013: $3.75 for the full journey and $2.90 for the partial trip for cars.
Time savings estimated at 20mins, 18 traffic signals
The APLM7 is estimated by the operator BrisConnections to save motorists driving its full length 20 minutes, avoiding 18 traffic signals on the old surface highway. Part length trips are claimed to save 13 and 14 minutes.
It cost investors and lenders some $2.6 billion.For 27 lane-km, 16 lane miles that's nearly $100m/lane-km, $163m/lane-mile. (Shareholders called 'unit holders' in Australian parlance financed just over $1 billion and various lenders some $1.5b from what we can make of their annual financial report.)
AirportlinkM7 (APLM7) is connected to another troubled inner area toll tunnel the CLEM7 Tunnel and an Inner City Bypass.
The Brisbane metro area has about 2.2m people compared to Sydney 4.6m, and Melbourne 4.2m.
Brisbane's population is similar to 24rd to 26th ranking US metro areas: San Antonio TX 2.2m, Sacramento CA 2.2m, Orlando 2.2m.
NOTE: Robert Bain points out that in an email before the opening he bet actual traffic on AirportLinkM7 would be between "a third and a half" of that forecast by Arup. A third is 47k and a half 70k so his mean bet was 59k vs actual 53k. CONCLUSION: Bain's bets are better than his modeling?
He also makes the point that actual toll rates are somewhat different from those assumed in the modeling, and in the bets.