Australian toll roads are usually financed by a combination of debt and equity, but there are two different ways in which this financial arrangement is utilised. The first one involves private equity partners who subscribe capital and in the second one the toll road project is listed on the Australian Stock Exchange (ASX), and tradable shares or trust units are issued. Examples of the first kind of arrangement are the Sydney Cross City Tunnel (CCT) and the Lane Cove Tunnel (LCT). Examples of the second kind include the M2 Motorway and Transurban City Link. This paper analyses three financial models the CCT, LCT and M2 by the mathematical theory of probability in order to determine whether the cash flow is likely to be able to amortize debt by the end of the concession periods. Based on the matrices of financial data given in the models, the analysis shows that the probability of insolvency is generally very high even if the time value of money is ignored. If it is not ignored and appropriate discount rates are applied to the relevant financial quantities, the probability of insolvency is certain. These results have potentially serious consequences for long term investors such as superannuation funds with substantial equity positions. (a) For the covering entry of this conference, please see ITRD abstract no. E214666.
Abstract