Macquarie's M6 profit used for more roads

Macquarie Infrastructure Group, the 100% owner of Midland Expressway, has agreed to fund two new road schemes in the Midlands at a cost of more than £110m.

The money represents part of the proceeds of Midland Expressway's refinancing of the M6 Toll road, the £900m construction project that has now been up and running for more than two years.

Macquarie's current valuation of its investment in the M6 Toll stands at £1bn. On top of this, the project carries a £600m debt. This has now been refinanced at a lower rate of interest as, having moved past all the financial and development risk associated with the planning and construction phases, the project is viewed by money-lenders as being less risky. David Harrison, Macquarie's European managing director, first contacted Mel Zuydam, finance director with the Highways Agency (HA), last year.

The problem Macquarie faced was that with this being a strictly private scheme, there was no call on it to adhere to the voluntary code, subsequently brought in for major PFI projects, whereby 30% of the financial gains stemming from refinan-cing would go back to the government. "There was nothing in this concession to say that Macquarie had to share anything," said Zuydam. "In fact, its shareholders would have objected. The deal was signed in 1992 and it was a privately financed concession, not a PFI, which meant that the builders took full risk. "But this concession has a 40-year life still left and Macquarie wanted everyone to see that it was in the UK for the long-run. "It wants to build a positive relationship with the government and knew that taking a big gain would attract bad publicity.

"There were no threats in my negotiations and no bungs. My response to Harrison had to be to offer a win-win situation: it could be done, as the HA had a road on its list that it needed, the bonus for Macquarie being that it would feed more traffic onto the M6 Toll." Harrison went to Australia and obtained the support of Macquarie's board. Most of the £112m will be spent on a new link from the M54 to the M6 and the M6 Toll. The second scheme, a relatively minor project, will eliminate the HA's original design errors in another link to the M6 Toll.

Macquarie is shortlisted for the £4.5bn M25 DBFO scheme.

[Contract Journal, 1 June 2006, p 8]