M25 widening - £400m funding shortfall 'will come from government'

The government may have to cough up £400m of the £1.25bn debt needed to get the M25 motorway widening project up and running, Richard Threlfall, head of transport in corporate finance for KPMG, has warned.

Threlfall told the Financial Times today: “I don’t think there is any expectation left in government that they will be able to get more than about £800m in private finance for the scheme.”

Should government put £400m in, then it would hope to recoup the investment in a later refinancing, added Threlfall.

Others commented that the £400m figure was ‘way too high’.

The vast scale of the M25’s financial call – involving 17 different banks each loaning around £50m – means that the entire project could stall if several banks walk away and the remainder decide that they are not prepared to lift their commitments to cover the shortfall.

The project was initially due to reach financial close in November 2008 but that test moment was subsequently moved back to Q1 2009.

Now it is not even due for serious discussion in the financial markets until Q2.

The financial uncertainty and delay is strengthening the arm of those at the Highways Agency who would rather pull the widening project altogether, believing it possible to replace it with an Advanced Traffic Management (ATM) model instead which would be much cheaper.

Those in the HA who are pushing for the existing proposal to be totally scrapped are said to be arguing that the PFI model, on which the current proposal is based, is not sufficiently flexible to cater for the inevitable modifications that would be needed within its 25-year working life.

The current stresses in the financial markets mean that within banks there has been a shift in power such that the banks’ credit control committees have a much firmer grip on the reins as regards lending.

The result of this is that a bank’s TA (technical adviser) has become the all-powerful and final arbiter, checking through the sustainability and risk profile issues of each project under consideration and then ranking the list by order of preference – the key factor in deciding positions on that list being risk profile assessments.