N4: local in-road
Toll roads have provided much of the thrust behind the momentum of
project financing in South Africa. The N4 West toll road is no
exception. The concession signed, on October 4, with Bakwena
Plantinum Corridor Consortium (BPCC), comprised of Murray &
Roberts, Hochtief subsidiary Concor Construction, Wilson Bayly
Holmes Ovcon and Dragados, as well as a number of other
contracting, engineering and empowerment groups.
The total cost of the concession is R2.4 billion, and includes initial upgrading and construction work. The debt/equity split is 75/25, with R600 million equity to be set down in part by the Southern African Infrastructure Fund, managed by Macquarie Bank and Old Mutual. Other potential investors include Future Growth, owned by Southern Life, and the Isibiya Fund, a civil service pension fund.
NedCor Investment Bank is lead arranging the R1 billion senior debt portion as well as R150 million of sub-debt, which complements the Investec arranged R700 million inflation-linked tranche. The EIB may also commit to an Eu50 million loan.
ABSA is sub-underwriting the NedCor tranche and, likewise, Standard Bank is flanking Investec. It is as yet unclear whether the selldown will continue beyond these teams. Societe Generale (SG) acts as financial adviser to the consortium.
Those familiar with the deal expect financial close by either the end of the year or next February, which would allow for an interim summer holiday recess. But, whenever it happens, the fact remains that the N4 wrap will mark the biggest toll road deal, not to mention project financing, in South Africa to date.
The deal steers in swiftly behind last year's N3 toll concession, which won Project Finance's 1999 Deal of the Year Award. That concession, with R2.1 billion in financing, was the largest BOT in South Africa and etched a successful template, as the N4 allegedly demonstrates, for future infrastructure projects in the country.
Pricing on the N4 deal, however, is expected to be hefty, partly as a reply to forecasting complexity ? it will likely exceed that of the N3.
The N3 debt boasted a judiciously placed CPI linked facility ? to combat the inflation and interest rate pressures affecting funding costs ? which proved to be the best way to raise domestic debt from pension funds. The N4 debt features a like-minded chunk, with Investec's inflation-linked tranche.
The South African investor community certainly feels the need to develop local banking and capital markets. The problem, explains a domestic banker, is a general lack of sufficient ?commercially sound projects which are structured well enough to actually take off and thereby help introduce new products such as, say, inflation-linked debt.?
Here again, the country's toll road scheme is a promising catalyst. As the N4 demonstrates, South Africa does have the domestic capital market and banking capacity to fund new infrastructure projects internally. This is perhaps for the best, since most of the lending takes place in Rand and foreign lenders often shy away for fear that their debt may be too expensive for domestic companies. However, it is unlikely that available domestic funds will fit all future needs ? hence, a need for a change in international attitude and, accordingly, greater international lending.
But the South African market exhibits certain qualities which deepen the complexity of putting together deals like the N4. Though learning fast, local banks are still teething on project finance techniques. As such, the debt/equity split on this transaction, though comfortably cut from an international perspective, was allegedly a point of initial concern for the domestic lenders.
Other country specific challenges include, for example, the volatility of local financial markets, still recovering from the Russian crisis.
The Platinum Corridor Highway, as the N4 is also known (it traverses the world's richest platinum deposits), will run from Warmbaths in the Northern Province through Pretoria North in Gauteng, to Skilpadnek in the North West Province on the Bostwana border, near Lobatse. It will also link the North and North West Provinces of South Africa via the N4 Maputo Corridor Toll Route to the Maputo port. BPCC, on a 20-year concession, will be responsible for the 28km section of the road from the capital Pretoria to the Botswana border.
This section is notorious for its complexity ? a fact attested to by it having required the most intricate traffic modeling ever undertaken. Forecasters for the scheme reportedly urged Leeds University to enhance their standard ?Saturn? traffic modeling software to handle the parameters.
The complexity lies in the fact that the origin-destination profile for road users is more fragmented and, around Pretoria, there are numerous alternative routes. The N3, in contrast, paved the way for straightforward, end-to-end traffic, with a lesser threat of diversion.
Further complicating forecasting is the impact of fuel prices on potential road users ? commuter traffic levels have already suffered as a result of soaring prices.
And then, the all-important toll issue. Tolling will follow an open strategy focussing on long distance through traffic. The bulk of revenue will be reaped around Pretoria, where, understandably, traffic volume is vastly higher. But since physically tolling an estimated average 60,000 vehicles per day poses a unique set of difficulties, the consortium stepped in with a unique solution: electronic tolling.
In fact, the electronic tolling (ETC) mechanism may have lent BPCC a competitive advantage in the bid-phase ? it eliminates the stopping time at toll plazas and, according to the consortium, ensures more efficient transactions. Dragados has already demonstrated considerable expertise with the system in Latin America.
Other factors contribute to BPCC's competitive advantage. A source close to the deal explains that competing bids suffered from, among other things, a lack of CPI-linked debt, higher construction costs, and, at 80/20, an unfavorable debt/equity ratio (the South African National Roads Agency (SANRA) allegedly warmed to BPCC's deeper equity commitment). SANRA awarded BPCC the concession last year.
The idea is to ultimately build a road from the north, the PWV9 road, which will link with the N4, forming a complete ring-road around Pretoria.
The total cost of the concession is R2.4 billion, and includes initial upgrading and construction work. The debt/equity split is 75/25, with R600 million equity to be set down in part by the Southern African Infrastructure Fund, managed by Macquarie Bank and Old Mutual. Other potential investors include Future Growth, owned by Southern Life, and the Isibiya Fund, a civil service pension fund.
NedCor Investment Bank is lead arranging the R1 billion senior debt portion as well as R150 million of sub-debt, which complements the Investec arranged R700 million inflation-linked tranche. The EIB may also commit to an Eu50 million loan.
ABSA is sub-underwriting the NedCor tranche and, likewise, Standard Bank is flanking Investec. It is as yet unclear whether the selldown will continue beyond these teams. Societe Generale (SG) acts as financial adviser to the consortium.
Those familiar with the deal expect financial close by either the end of the year or next February, which would allow for an interim summer holiday recess. But, whenever it happens, the fact remains that the N4 wrap will mark the biggest toll road deal, not to mention project financing, in South Africa to date.
The deal steers in swiftly behind last year's N3 toll concession, which won Project Finance's 1999 Deal of the Year Award. That concession, with R2.1 billion in financing, was the largest BOT in South Africa and etched a successful template, as the N4 allegedly demonstrates, for future infrastructure projects in the country.
Pricing on the N4 deal, however, is expected to be hefty, partly as a reply to forecasting complexity ? it will likely exceed that of the N3.
The N3 debt boasted a judiciously placed CPI linked facility ? to combat the inflation and interest rate pressures affecting funding costs ? which proved to be the best way to raise domestic debt from pension funds. The N4 debt features a like-minded chunk, with Investec's inflation-linked tranche.
The South African investor community certainly feels the need to develop local banking and capital markets. The problem, explains a domestic banker, is a general lack of sufficient ?commercially sound projects which are structured well enough to actually take off and thereby help introduce new products such as, say, inflation-linked debt.?
Here again, the country's toll road scheme is a promising catalyst. As the N4 demonstrates, South Africa does have the domestic capital market and banking capacity to fund new infrastructure projects internally. This is perhaps for the best, since most of the lending takes place in Rand and foreign lenders often shy away for fear that their debt may be too expensive for domestic companies. However, it is unlikely that available domestic funds will fit all future needs ? hence, a need for a change in international attitude and, accordingly, greater international lending.
But the South African market exhibits certain qualities which deepen the complexity of putting together deals like the N4. Though learning fast, local banks are still teething on project finance techniques. As such, the debt/equity split on this transaction, though comfortably cut from an international perspective, was allegedly a point of initial concern for the domestic lenders.
Other country specific challenges include, for example, the volatility of local financial markets, still recovering from the Russian crisis.
The Platinum Corridor Highway, as the N4 is also known (it traverses the world's richest platinum deposits), will run from Warmbaths in the Northern Province through Pretoria North in Gauteng, to Skilpadnek in the North West Province on the Bostwana border, near Lobatse. It will also link the North and North West Provinces of South Africa via the N4 Maputo Corridor Toll Route to the Maputo port. BPCC, on a 20-year concession, will be responsible for the 28km section of the road from the capital Pretoria to the Botswana border.
This section is notorious for its complexity ? a fact attested to by it having required the most intricate traffic modeling ever undertaken. Forecasters for the scheme reportedly urged Leeds University to enhance their standard ?Saturn? traffic modeling software to handle the parameters.
The complexity lies in the fact that the origin-destination profile for road users is more fragmented and, around Pretoria, there are numerous alternative routes. The N3, in contrast, paved the way for straightforward, end-to-end traffic, with a lesser threat of diversion.
Further complicating forecasting is the impact of fuel prices on potential road users ? commuter traffic levels have already suffered as a result of soaring prices.
And then, the all-important toll issue. Tolling will follow an open strategy focussing on long distance through traffic. The bulk of revenue will be reaped around Pretoria, where, understandably, traffic volume is vastly higher. But since physically tolling an estimated average 60,000 vehicles per day poses a unique set of difficulties, the consortium stepped in with a unique solution: electronic tolling.
In fact, the electronic tolling (ETC) mechanism may have lent BPCC a competitive advantage in the bid-phase ? it eliminates the stopping time at toll plazas and, according to the consortium, ensures more efficient transactions. Dragados has already demonstrated considerable expertise with the system in Latin America.
Other factors contribute to BPCC's competitive advantage. A source close to the deal explains that competing bids suffered from, among other things, a lack of CPI-linked debt, higher construction costs, and, at 80/20, an unfavorable debt/equity ratio (the South African National Roads Agency (SANRA) allegedly warmed to BPCC's deeper equity commitment). SANRA awarded BPCC the concession last year.
The idea is to ultimately build a road from the north, the PWV9 road, which will link with the N4, forming a complete ring-road around Pretoria.
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