During a period when Australian state governments are scaling back infrastructure spending in the face of mounting worries about their debt levels, New South Wales has rolled out a number of privatisations of key infrastructure and energy assets, with the aim of releasing cash to pay down debt and fund new infrastructure spending.

The A$5.07 billion ($4.6 billion) sale of the ports of Botany and Kembla is the largest privatisation to be completed so far and could serve as a model for future acquisition financings in the state. The government of New South Wales structured the sale to maximise competitive tension, and the proceeds of the sale came in well excess of the retention value of the assets, defying government’s and observers’ most optimistic predictions.

The timing was impeccable. A confluence of several factors – low interest rates, high pension fund liquidity and volatile equities – meant that the sale attracted plenty of interest from Australian superannuation funds and overseas pension funds. Bidders saw the assets a way to get long-term exposure to the performance of Asian markets in a stable economy with a strong currency.

Botany serves a vital role in the economic life of Sydney, Australia’s commercial capital, and has a monopoly on coal shipment, providing investors with a proxy for Australian gross domestic product. Kembla, located in Wollongong, is a key export facility for bulk products and is also the country’s largest import facility.

The state’s government took attractive assets, and used a sales process helped nudge the sale price up. First, it offered both ports to bidders under a 99-year lease, which provided investors with a buffer against volatility in container charges by giving them access to revenue derived from long-term rental agreements.

Second, the government provided bidders with a clear timeline from when it issued the request for expressions of interest documents in October 2012. This meant that bidders had sufficient time to prepare their proposals and firm up commitments from lenders, and that the government was able to pick a preferred bidder in a short period of time.

Industry Funds Management, AustralianSuper, QSuper and Tawreed Investments, a subsidiary of the Abu Dhabi Investment Authority won the lease of both ports at the beginning of April 2013. Global Infrastructure Partners was initially involved as an equity investor in this consortium, but withdrew earlier this year, retaining a role as a manger for QSuper’s investment.

The winning consortium beat out competition from two other confirmed bidders. They were Canadian Pension Plan Investment Board and Queensland Investment Corporation, advised by Macquarie; and Hastings Fund Management and Ontario Teachers’ Pension Plan, advised by JP Morgan and RBC. Citi Infrastructure Investors, advised by Credit Suisse, was also rumoured to have been shortlisted.

The sponsors closed the financing towards the end of May through A$2.02 billion in senior debt from a club of ten lenders – ANZ, BTMU, CIBC, Credit Agricole, DBS, ICBC, ING, KDB, NAB and SMBC. The financing breaks down into a Eu962.5 million 5-year term loan, a Eu962.5 million 3-year term loan, a Eu85 million capital expenditure facility and a Eu10 million revolving credit facility.

The financing is rounded off with A3.05 billion in equity. The debt is competitively priced, at 200bp over 3-month BBSY for the 5-year term loan, 175bp for the 3-year term loan and 170bp for the two other facilities. Several lenders are understood to have been reluctant to be exclusively tied to a particular bidder and instead used multiple trees to support bidders. Their stance probably widened the pool of potential lenders to the eventual winner and kept debt pricing low.

Given that the sponsors are financing the acquisition through short-term bullet debt, and comparatively low leverage, they are expected to launch a bond refinancing in the future. In June last year, Global Infrastructure Partners, Queensland Investment Corporation, Industry Funds Management and the Abu Dhabi Investment Authority closed a A$550 million private placement to refinance part of the acquisition debt they closed for Brisbane port.

Considering the similarities in terms of both asset type and sponsor make-up, several bankers familiar with the deal say that they would be surprised if the sponsors did not pursue this option.

The government of New South Wales has already earmarked part of the proceeds for its newly established Restart NSW infrastructure fund, which invests in key greenfield infrastructure projects in the state. The government has already pledged some to recycle some of the proceeds in the development of the WestConnex toll road and North West rail projects.

Mike Baird, the treasurer for New South Wales, said in his budget last month that the state would privatise Newcastle port. Several bankers have suggested that this is likely to fetch roughly A$900 million from private investors. 

NSW Ports Finance Co Pty
STATUS
Signed 12 April 2013,
financial close 31 May 2013
SIZE
A$5.07 billion
DESCRIPTION
Privatistation of ports Botany and Kembla in New South Wales, Australia
GRANTOR
New South Wales
SPONSORS
Industry Funds Management (35.05%), AustralianSuper (20%), Tawreed Investments (19.99%), QSuper (15%), IFM-managed entities (9.96%)
MANDATED LEAD ARRANGERS
ANZ (facility agent), BTMU, CIBC, Credit Agricole, DBS, ICBC, ING, KDB, NAB and SMBC
GRANTOR’S FINANCIAL ADVISER
Morgan Stanley
SPONSORS’ FINANCIAL ADVISERS
Lazard, UBS
GRANTOR’S LEGAL ADVISER
Minter Ellison
SPONSORS’ LEGAL ADVISER
Herbert Smith Freehills
LENDERS’ LEGAL ADVISER
King & Wood Mallesons