Asia-Pacific Healthcare Deal of the Year 2012: SCUH


Lenders hope that Queensland will maintain a strong pipeline of concessions, during a period when enthusiasm in Australia’s two biggest PPP users, Victoria and New South Wales, appears to be on the wane. Consistent volume in Australia’s thus far patchy infrastructure programme will introduce competitive tension and drive down financing costs, say lenders and sponsors.

The A$1.8 billion ($1.84 billion) Sunshine Coast University hospital deal is the first major hospital PPP in the state of Queensland. The deal also marries two trends in the Australian infrastructure market over the last few years – healthy government and local bank support – to produce an influential and bankable template.

Shorter tenors have been the norm in Australia, ever since the global financial crisis put a halt to Australia’s project bond market, and this financing is no different. The financing features a hard mini-perm, with sponsors assuming both project and margin risk at the end of the term loan’s 7-year maturity.

Sunshine Coast pushes the envelope slightly further than previous healthcare PPPs, because it is the first concession to incorporate parking revenue, providing a test for lenders that have tended to eschew demand risk. The deal is also noteworthy for its rigid timetable, which should help maintain interest from lenders in future Australian concessions, because they have often complained of delays during the tendering phase.

“There are probably three things that are worth mentioning about the project”, says Vaughan Wallace, director at Capella Capital. “The first is that it’s a large project in its own right and it’s the first major hospital project that the Queensland government has procured as a PPP ever. It’s also the first greenfield hospital project in Australia in more than 20 years.

“The project also closed fairly quickly. The bids went in on the 28th of February and the deal reached financial close by the end of July, which is a pretty quick turnaround, especially when you consider there was a change in government in Queensland in the middle of that. From a finance perspective, one unusual aspect is the inclusion of car parking revenue within the deal, which the state government normally retains.”

The project entails the construction of a new 738-bed public teaching hospital, the centrepiece of the new Kawana health campus, located on Queensland’s Sunshine Coast. The sponsors will be responsible for the construction of the new hospital in several phases, starting in late 2016 and ending in 2021, and its maintenance over the life of the concession, which is 25 years.

The procuring authority, the government of Queensland, issued a tender in the April 2011, received five expressions of interest and shortlisted three consortiums in July. The three shortlisted bidders were Lend Lease, Siemens, Capella Capital and Spotless; Abigroup, Thiess, John Laing, InfraRed and RBS; and Laing O’Rourke, Bilfinger Berger, UGL and Macquarie.

Following a request for proposals in September, the three shortlisted consortiums submitted bids in February 2012, and the government quickly reduced the number of bidders to two, eliminating the consortium featuring Laing and InfraRed. The procuring authority soon named Exemplar Health, led by Siemens and Lend Lease, preferred bidder, after asking for clarifications to the bids from the final two.

The sponsors signed the projects documents in mid-July, and closed the deal and drew on the debt a few weeks later, after fulfilling final conditions precedent.

One explanation for the speed with which the deal closed is probably the fact that, unlike elsewhere, bidders for Australian projects need to provide fully committed offers. Siemens and Lend Lease won out ahead of the other consortium, having lined up support from their relationship lenders – Mizuho, NAB and Westpac – in addition to a commitment from Siemens to provide part of the debt.

The A$510 million in debt has a maturity of seven years, although the amortisation profile is much longer, meaning that the sponsors will face a large bullet repayment at the refinancing date. Mizuho, NAB and Westpac are taking tickets of about A$151 million each, while Siemens has the smallest share, equivalent to a ticket of about A$57 million. The financing is then rounded off with about A$820 million in government contributions and roughly $470 million in equity, split equally between the two sponsors.

Since the financial crisis in Australia, door-to-door financing solutions have become an aberration and are virtually impossible without the support of an overseas bank club, like the lending group on the A$1 billion Gold Coast Rapid Transit project. The Sunshine Coast project stretches bank appetite with the introduction of demand risk, and demonstrates that there is still deal flow in some of Australia’s less established social infrastructure markets. 

Exemplar Health
Status
Signed 18 July,
financial close 31 July
Size
A$1.8 billion
Description
Financing for the construction of a new teaching hospital on Australia’s Sunshine Coast
Grantor
Government of Queensland
Sponsors
Lend Lease Infrastructure Investments (50%), Siemens Project Ventures (50%)
Debt
A$510 million
Lenders
Mizuho, NAB, Siemens Bank, Westpac
Grantor’s financial adviser
KPMG
Grantor’s legal adviser
Freehills
Sponsors’ financial adviser
Capella Capital
Sponsors’ legal adviser
Clayton Utz
Sponsors’ tax adviser
PricewaterhouseCoopers
Sponsors’ insurance adviser
JLT
Lenders’ legal adviser
Gilbert & Tobin
EPC contractor
Lend Lease Project Management and Construction
FM providers
Siemens, Spotless Facility Services