The Gold Coast Rapid Transit project, which reached financial close in June 2011, is Australia’s second availability-based transport PPP. The A$1.38 billion (US$1.47 billion) light railway line will link key areas of the city such as educational and medical facilities, commercial areas, and retail centres.

The scale of the project is a clear indicator of the Australian government’s commitment to spending on infrastructure. The financing of the project is also noteworthy for predominance of foreign banks. This marks a departure from market conditions during the financial crisis, when the project finance sector was heavily dependent on domestic players.

Phase I of the light rail line will run from Broadbeach through Surfers Paradise and Southport to the new Gold Coast University Hospital, also developed as a PPP. The 13km rail line will have six stations, and will be serviced by 14 light rail cars. The project is located in one of Australia’s fastest growing regions, and the sponsor expects passenger numbers to grow to 50,000 passengers per day – a figure which could eventually grow to 75,000 per day.

The project is a DBFOM concession lasting for 15 years from construction to completion, with availability payments based on the Australian CPI.

The Gold Coast Rapid Transit is one of two PPP deals over the A$1 billion mark to have reached financial close during the first six months of 2011 – the other being the A$2.9 billion new Royal Adelaide Hospital PPP [Transactions Database]  

The Australian PPP market took a hit during the global financial crisis, resulting in a reduced deal flow in 2009 and 2010, and an exodus of foreign banks from the market. However, there have been clear signs of recovery in the first half of 2011. The close of these two big-ticket deals and a resurgence in confidence among overseas banks in the infrastructure sector show that while the market may not exactly be booming, it has emerged from the crisis fighting fit.

“Attitudes of foreign banks have changed positively over the past 12-14 months, and the PPP sector has become less reliant on domestic players,” Adrian Box, Melbourne-based partner at KPMG, told IJ.

If any project bears testimony to the increased confidence of foreign banks in the Australian market, is it the Gold Coast Rapid Transit system. All of the banks involved in the A$365 million debt pile are foreign players:

• Export Development Canada – A$110 million
• Intesa Sanpaolo – A$110 million
• BBVA – A$76 million
• KfW – A$70 million

Meanwhile, the GoldlinQ consortium that provided the A$65 million of equity was dominated by foreign investors:

• INPP (an Amber Infrastructure company) – 26.6 per cent stake
• Aveng Group – 10 per cent
• Keolis (O&M contractor) – 10 per cent
• Marubeni Group – 26.7 per cent
• Plenary Group/Australian Social Infrastructure Fund (26.7 per cent) 

Ernst & Young is financial adviser to the consortium.

This deal marks a departure from market conditions during the financial crisis. During 2009, RBS was one of the only active foreign banks in the market, whereas now Australia is seeing an uptick in interest, especially from European and Asian banks.

Advisors to the authority, the Government of Queensland, are:

• PwC - commercial and financial
• Corrs Chambers Westgarth - legal
• Coffey Commercial Advisory - transaction management
• Interfleet - operations
• Aurecon - technical and engineering
• Manidis Roberts - embedded project team member
• Ranbury Management Group - embedded project team member
• Sturgeon Consulting - embedded project team member
• MWH - transport modelling and future stages corridor planning

 Australia is contending with a significant infrastructure deficit- between A$400 and A$750 million, according to some estimates- and the government appears to be committed to heavy spending on infrastructure in order to boost the country’s economic competitiveness.

The Gold Coast Rapid Transit system is part of a ‘nation building’ programme, which was the centrepiece of Australia’s 2009-2010 Commonwealth Budget.  The government announced plans to spend A$22 billion on developing and upgrading the country’s infrastructure, including an expenditure of A$ 8.5 billion in rail, roads and ports. The Australian government hopes that this Keynesian approach to infrastructure development will give a considerable boost to the national economy, and will support around 15,000 jobs a year.

As well as fitting into a broader strategy of promoting economic growth and job creation, policymakers hope that the Gold Coast Rapid Transit will boost the city’s tourism industry.

Heavy capital expenditure from the government reflects the Gold Coast Rapid Transit system’s strategic importance; the public sector is providing A$949 million, of which A$365 million is from the Building Australia Fund, A$464 million from the Commonwealth government, and A$120 million from Gold Coast City Council.

A project of the size and scope of the Gold Coast Rapid Transit system sends positive messages to the market after lull during the crisis years. It would be an overstatement to say that Australia’s project finance market is heating up, but the confidence of sponsors and investors alike appears to have increased considerably.