Financial fiasco almost wipes out equity of Brisbane Oz tunnel concessionaire but they soldier on

November 11, 2008

The great global financial fiasco has its fun side. Mrs Fang He, apparently an emigrant Chinese woman filed with the Australian Stock Exchange November 5 that she had become, under the rules of trading, a "substantial holder" of stock in BrisConnections, a recently formed toll concession in Brisbane, Australia's third city. She bought 32.3 million shares ('units' there) or 8.6% of the equity of BrisConnections.

BrisConnections won a competitive bid with the state of Queensland in May for a 45 year toll concession involving about $3.4b (A$5 billion) of work for an Airport Link toll tunnelway, a busway also largely underground, and other road improvements and connections between the central business district and the major area airport.

Mrs Fang works in an aluminum window shop in an industrial suburb of Melbourne.

The BrisConnections shares which were issued at 67c (A$1.00) apiece were part of an initial public offering that brought in $260m or A$390m (A$=67c) in July.

Mrs Fang would have had to shell out A$32.3 million back in July. In fact she paid A$32.3 thousand Nov 5!

BrisConnections stock are trading at a tenth of a cent, and a weak Ozzie cent into the bargain.

They've declined to a thousandth of their value on issue in the past five months of trading on the Australian Stock Exchange.

Wait, wait, wait...

Readers, before you rush to join Mrs Fang as a shareholder of BrisConnections be aware that Mrs Fang has, knowingly or otherwise, undertaken the legal obligation to buy at par (A$1.00) 32.3m more shares in BrisConnections April 29 2009 and another 32.3m at par early 2010.

She's got to come up with $43m ($64.4m) or she forfeits her $21,000 (A$32.3k) worth of BrisConnection shares.

The great search for Fang He

Hordes of journalists are now trying to flush out Mrs Fang to ask her where she's going to get A$64m+.

Or whether she feels she was conned into her share purchase.

Wisely she seems to have disguised herself as a Japanese tourist on Australia's Gold Coast, or has decided to visit relatives in Gaoxiong.

She's nowhere to be found - to the disgrace of the Australia media horde.

Intention revised

For a while - pre Mrs Fang - there was a brisk trade in BrisConnections at single digit cent prices because the management had promised, no not promised but expressed an "intention" to pay a dividend (called a "distribution") of 5.95c per share.

If you could buy a share for say 8c (this is all 67c Oz dollars remember) then getting 5.95c dividend was a pretty hot rate of return - like 74%!

They have since decided this intended distribution/dividend would be imprudent so they've reduced it to about the cost of the postage to mail the checks. Like A0.05c (US0.035c).

Muscial chairs

Then there was musical chairs routine.

The board of directors fired the management and the management fired the board of directors - or something like that. Much more esteemed and experienced "leadership" was recruited in place of a perfectly respectable crew that had to be sacrificed on the altar of Restoring Confidence.

But in the context of the Great Global Financial Fiasco (G2F2) it all did no good.

It turns out most of the equity was subscribed not by individual investors but by institutions, investment banks, insurance companies, pension funds and the like. And others could see what was happening so they bailed too.

BrisConnections showed exquisitely bad judgment in the timing of their stock issue. Just about everything in the financial world was going to hell. Many of the stock sales were forced - investment companies looking to replenish their capital by liquidating assets.

Big bad black Mac takes a hit

Macquarie one of the largest shareholders sold BrisConnections, then bought in lower, then sold out completely, managing to rung up multiple losses to the unconcealed glee of many local reporters.

In the very first day of trading on the ASX the stock of BrisConnections traded around A70c then dropped to A40c, making headlines that it was losing 60% of its value in just a few hours of trading. Macquarie, Babock and Brown, ConnectEast and Transurban shares had all fallen by fractions of their value over a number of the months before.

60% in one day topped all that for the gloom & doom reportage by a mile.

The share price of BrisConnect just kept falling.

But here's another poignant angle.

BrisConnections chairman in what has to win a gold medal in the Olympic Games of Understatement said the share performance of their company has been "disappointing." 

Didn't honorable business leaders jump out of the windows of high rise buildings for stock price declines of a lot less than a thousand-fold decline?  Don't they have any honor any more?

And then they insist - talk about Kick Me PR - that the equity fiasco will have "no impact" on the Airport Link project because all their capital raising is secured and underwritten, setting off - you guessed it - a flurry of journalistic investigation, and where that doesn't turn up the goods, speculation about the financial health of those underwriters.

Day after day there will be exposes about how the walking dead or embattled of the G2F2 are or might be, or are connected in some way, to those underwriting BrisConnections.

Lost in the frenzy

Lost in the media furore is that:

- it's an inherently neat project of great benefit to the people and economy of Brisbane

- a couple of the best Australian construction companies Theiss and Holland are involved

- BrisConnections has contracted for a couple of the massive tunnel boring machines which should arrive in some months

- the project looks to have been engineered and designed very professionally and has strong political support

- they have started work on the project

Strong demand

Unlike two Sydney toll tunnelways - Cross City and Lane Cove - that got into financial trouble this one looks a strong project with little competition for traffic:

- Brisbane has been the most rapidly growing of Australia's major cities for several decades and despite many different governments

- it has a strong central business district and a major airport and only lousy surface signalized arterials between the two

- the underground road will dramatically improve travel times and reliability for high value trips

- it will serve not just the airport area but, since a major north-south motorway skirts the airport, northern suburbs and the port area as well

- it will be linked at its CBD end not just to local CBD streets but to a North South toll tunnelway that's fully financed and about half-built by a rival concessionaire

Maybe the cost is on the rich side at A$4,910m ($3.3b).

Construction itself is $2,280m (A$3.4b) of that.


It's just 6.7km long (4.2 miles) and of that 5.7km (3.6 miles) is underground. It's complicated and difficult construction as inevitably it must be in a dense developed area, and it provides a separate facility for buses from cars. The connections to other roads are plentiful but pricey.

Maybe the G2F2 will allow them to trim their outlays?

Tolling will be all-electronic, highway speed, transponders plus cameras.

Australian cities have more tunnel roads than the whole of North America and probably about as many as all of Europe, so they are getting good at building them.

No Boston Big Digs downunner.

Tribute to Mrs Fang

But they've got to do the right thing by Mrs Fang He, one of the few who had faith when all the others bailed.

This is where America can help. She needs at least a plaque at the tunnel portal of Thomas Paine type oratory: "These were the times that tried men's souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from holding stock, but she that stands by it now, deserves the love and thanks of man and woman. Bankruptcy, like hell, is not easily conquered..."


TOLLROADSnews 2008-11-10

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