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SECTION 3 BUSINESS OVERVIEW Power transmission and distribution Babcock & Brown has been involved principally as an advisor in power transmission and distribution projects. Completion Project Description Babcock & Brown role Size date Powerco Acquisition of a majority stake by Prime Infrastructure in New Zealand’s largest listed power distribution company Financial advisor to Prime Infrastructure $1,600m 2004 1 Basslink Development by National Grid plc of non-regulated, sub-sea transmission interconnector between Tasmania and Victoria Financial advisor to National Grid on its successful bid for the development contract over $500m 2002 Tennessee Valley Authority Long-term lease financing for TVA’s digital control and monitoring network Advisor to the US equity investors US$386m 2003 NOTE 1.The acquisition is pursuant to a takeover offer and is still subject to the satisfaction of certain conditions. Transportation Babcock & Brown’s most significant recent investment in the transportation sector was the acquisition of the DBCT in 2001 which was the foundation asset of the publicly-listed Prime Infrastructure (see case study below). Other representative transactions that Babcock & Brown have undertaken in this sector have included: Project Financial Project Description Babcock & Brown role size close Pusan Northern Port Development of a marine container terminal and logistics hub in Pusan, South Korea International financial advisor US$1,770m 2003-2004 Virgin Trains Virgin Rail Group’s replacement of rolling stock for the Cross Country train franchises in the UK Financial and procurement advisor to Virgin Rail Group £407m 1998 Angel Trains Privatisation of Angel Trains, rail operating lessor Financial advisor and member of a consortium with Nomura that acquired Angel Trains from the UK Government £696m 1996 58
BABCOCK & BROWN PROSPECTUS Case study Dalrymple Bay Coal Terminal (DBCT) DBCT is one of the largest open-access-coal-handling terminals in the world, with a net operating capacity of 56MTA, or approximately 6% of the world’s seaborne coal trade. In September 2001, Babcock & Brown led a consortium which purchased a 100% leasehold interest in DBCT from the Queensland Government, with the view to creating a listed diversified infrastructure-investment entity with DBCT as its foundation asset. Babcock & Brown syndicated the majority of its expected principal position during the bid process for DBCT. Shortly after the financial close of the DBCT acquisition, Babcock & Brown had completed the partial selldown of its equity stake to a group of private equity investors. In June 2002, nine months after the acquisition of DBCT, Babcock & Brown successfully led and completed the IPO of Prime Infrastructure on the ASX with DBCT as its foundation asset. A Babcock & Brown subsidiary continues to act as the Responsible Entity for the Prime Infrastructure Trust and also acts as Prime Infrastructure’s financial advisor. Moreover, Babcock & Brown remains a significant stapled security holder and, with its associates, has undertaken to hold a minimum of 20 million stapled securities until 2006. PFI/PPP PFI (Private Finance Initiative) or PPP (Public Private Partnership) projects are those where the public sector commissions private sector participants to provide services to the public sector which include building, financing and operating various forms of infrastructure before, in most instances, transferring operations to the public sector after a pre-agreed period, typically 25 years and in some cases up to 35 years.The government typically pays a pre-determined fee (often subject to an agreed formula) over the period of time that the private sector provides the agreed services. The long-term cash flow streams generated by these assets, backed by government credits, lend themselves to the types of asset financing techniques in which Babcock & Brown has considerable expertise. Babcock & Brown has developed a specialisation in smaller-sized accommodation-based PFI/PPP projects such as schools, prisons, courts and police stations, where revenues are not subject to patronage risk (in contrast, revenues for a toll road, for instance, depend on usage levels by commuters). A dedicated team was formed in the UK in 1997 to focus exclusively on such projects.The Australian Infrastructure Group also is an active participant in the emerging Australian PPP market. Babcock & Brown acts as the leader of a consortium of construction firms, architects, facilities managers, financiers, lawyers and other partners. Babcock & Brown’s typical role in the development is to structure the bid, arrange finance and negotiate operating agreements with the government and other operating partners. In general, Babcock & Brown receives development fees upon financial close of each project. Post-acquisition, Babcock & Brown will typically oversee all development activities and then in most cases acts as investment manager on behalf of equity providers. Babcock & Brown also frequently takes a principal equity position in the project. To date, Babcock & Brown has developed 13 projects in the UK with total gross development value of approximately £418 million.Three additional PFI projects with a development value of £260 million are at a preferred bidder stage and are expected to reach financial close in the forecast period. A further pipeline of developments is in the initial bid stage. 59
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