Australia’s largest-ever privately financed transportation infrastructure project appears to be running on schedule. But two years into its construction, Brisbane’s $4.6-billion Airport Link highway is taking a financial toll on the project’s design-build team.
The 6.7-kilometer toll road is being built to link central Brisbane to its northern suburbs and airport district. The project includes twin 5.7-km-long tunnels set some 20 meters apart.
With more than $2.5 billion spent to date, the project is more than 60% complete, reports Raymond Wilson, chief executive of the road’s concessionaire, Brisconnections. “The pace of tunnel excavation is quickening. We have seen four tunnel breakthroughs in the last weeks,” he adds.
But his counterparts on the construction team are less ebullient. Wall King, the chief executive of Leighton Holdings Ltd., recently announced an $81-million “deterioration” in the tunnel project’s finances. He cited “access and engineering difficulties” as being troublesome. The contractors declined to elaborate.
Airport Link’s “disappointing” performance, added King, was about the only blot on the group’s horizon. Leighton’s sales forecast for this year is estimated at $19 billion, partly from two Airport Link contractors it controls.
Those contractors, Thiess Pty. Ltd., South Bank, and John Holland Group, Melbourne, have equal shares in the design-build project. The companies also will operate the highway. They were the main sponsors of Brisconnections when it won the 45-year design-build-finance-operate contract from the Queensland state government in 2008.
Thiess and John Holland signed a separate lump-sum, time-guaranteed construction contract with Brisconnections, valued at around $3.3 billion. Working on a June 2012 completion deadline, the team faces liquidated damages of up to $413 million for any delays.
The joint venture has deployed over a dozen road headers and two of the largest tunnel- boring machines ever seen in Australia. The two 12.48-m-dia German Herrenknecht earth-pressure-balance machines cost $43 million each, says a Brisconnections official.
The undisclosed and costly construction snags follow the Airport Link’s troubled launch, due largely to its innovative form of financing.
As typical, Brisconnections raised bank debt for nearly $3 billion of project financing. But rather than investing their own equity up front, Brisconnections’ shareholders raised over $1 billion through an initial public offering on the Australian stock exchange in July 2008.
Investors paid the equivalent of around $1 per share and committed to buying two more in the next year at the same price. But immediately, the share price tumbled on the stock exchange, causing institutional investors to bail out.
As the share value dwindled to almost zero, amateur investors piled in. It seems they were lured by Brisconnections’ promise of a first dividend of 5.7¢ per share, substantially more than the buying price.
According to Brisconnections’ public records, one investor bought more than 47 million shares for around $0.001 each. However, he also acquired the unaffordable liability of paying for the remaining two installments at the original $1 a share, totaling over $90 million.
Brisconnections later slashed the dividend to a small fraction of what it originally offered. Its management spent the first months of the project in legal warfare with investors. For a long time, lawyers were the Airport Link’s only financial beneficiaries.