SESSION 11A

INVESTMENT IN

AUSTRALIAN

INFRASTRUCTUREGina Maio (AustralianSuper) &

Richard Buchanan, CTA (EY)

Agenda

1. Infrastructure Overview

2. Common structures

3. Q&A

Infrastructure Classes

Electricity

transmissionRoads Ports

Rail OthersElectricity

generationSocial

Defence Leap 2

ACT Courts Facility

Capital Metro

Moorebank Intermodal

Sunshine Coast Hospital

Gold Coast Light Rail

Gold Coast Light Rail Stage 2

QLD Schools Project

New Generation Rollingstock

Royal Children's Hospital

Redevelopment

Toowoomba Bypass

Airport Link

Legacy Way

Clem 7

QML Sale

Cross River Rail

Darwin Prison

Wiri Prison

Hobsonville Point School

Transmission Gully

Auckland Prison

NZ Schools 2 PPP

Puhoi to Warkworth

NZ Schools 3 PPP

Palmer Wind Park

Auckland Harbour X

Auckland Light Rail

PPP transactions

Recent deals closed

PPPs in procurement

Potential PPPs

QEII Hospital Car Park

Mundaring Water Treatment Plant

Eastern Goldfields Prison

Perth Stadium

Schools PPP

2nd Schools PPP

Women’s Prison PPP

New Royal Adelaide Hospital

South Road Corridor

AdeLINK

Convention Centre

Northern Beaches Hospital PPP

NorthConnex

Sydney Metro North West

Sydney Light Rail

WestConnex

Moorebank Intermodal

Grafton Prison

Social Housing

Sydney Metro CSW

Parramatta Light Rail

New Stadium

Second Sydney Airport

Integrated Health

Partnerships

Bendigo Hospital

Ravenhall Prison

VCCC

Victorian Schools 2

Western Distributor

HCMT Rolling Stock PPP

Melbourne Metro

OSARS

PPP Projects Australia and New Zealand

Date Target Bidder Deal Description Status

Deal

Value

(A$m)

Implied

Enterprise

Value

May-16Canberra Data

Centres

HRL Morrison &

Co, Infratil

New Zealand Infrastructure manager HRL Morrison & Co, on behalf of Infratil Ltd and

Commonwealth Superannuation Corporation purchased Canberra Data Centres from

Quadrant Private Equity for $800m. Canberra Data Centres is a data centre operator

and manager located in Canberra, ACT, that provides data systems and security to

government and commercial clients.

Closing 800 800

Feb-16Mortlake Terminal

Station AusNet Services

AUSNET Services has agreed to buy Mortlake Terminal Station in Western Victoria,

Australia from Origin Energy for A$110 million. The terminal station connects Origin's

Mortlake power plant to Victoria's electricity network, and is already operated and

maintained by AusNet.

Closing 110 110

Dec-15 Pacific Hydro* China State Power

China's State Power Investment Corp purchased wind and hydro renewable energy

business Pacific Hydro, from IFM for a purchase price of approximately $3 billion

AUD, including debt. Pacific Hydro owns 900 megawatts of generation capacity across

19 hydropower dams and wind farms in Australia, Chile and Brazil, as well as a

significant pipeline of wind projects and potential wind sites in Australia. Completion

is anticipated in January 2016.

Closing 3,000 3,000

Dec-15AirportLinkM7*

(BrisConnections)Transurban

Transurban Group acquired Brisbane toll road AirportLinkM7 from BrisConnections

(in receivership) for $1.87 billion, further expanding Transurban’s toll road portfolio,

which already comprises five Brisbane toll roads. Transurban has recently

undertaken a renounceable rights issue of approximately $1b to fund the acquisition,

reduce overall debt and to pursue further potential transactions.

Closing 1,870 1,870

Dec-15

Worsley Multi-Fuel

Cogeneration

(Worsley Cogen)

Whitehelm

Capital

The General Electric (GE) Energy Financial Services sold 49.9 percent of its stake in

Worsley Multi-Fuel Cogeneration (Worsley Cogen) power plant to Whitehelm

Capital.

Known as Worsley Cogen, the power plant has an ongoing power-supply contract

with leading alumina refinery, Worsley Alumina of BHP Billiton. The 25-year “take or

pay” contract with Worsley Alumina has the tariff pegged to inflation. The dual unit

multi-fuel cogeneration plant has a capacity of 550 tons per hour (tph) of steam and

104MW of electricity.

Closing 1,200 1,200

Nov-15 TransGrid*

Hastings Funds

Management,

CDPQ, Abu Dhabi

Investment

Authority, Kuwait

Investment

Authority, Spark

Infrastructure

99-year lease of the New South Wales high-voltage electricity transmission asset

TransGrid from the New South Wales Government. The successful consortium

comprised Australian infrastructure funds Hastings Funds Management (20% stake)

and Spark Infrastructure (15% stake), the Canadian pension fund Caisse de dépôt et

placement du Québec (25% stake), and the Abu Dhabi Investment Authority (20%

stake) and the Kuwait Investment Authority (20% stake).

The NSW Government has indicated that funds from the sale will be reinvested a

number of NSW infrastructure projects as a part of the government’s “Rebuilding

NSW” plan.

Closed 10,258 10,258

Recent infrastructure transactions

Date Target Bidder(s) Deal Description Status

Deal

Value

(A$m)

Implied

Enterprise

Value

Oct.- 15 Victorian Schools PPP

Learning

Communities

Victoria

The Victorian Coalition Government launched a competitive tender process in 2014

for a bundled school PPP.

The proposed construction of 12 new schools in growth areas of the state was

announced as part of the 2014-15 Victorian Budget. Eleven of the 12 schools will be

constructed under a public private partnership contract which will include a long-

term facilities management contract.

Closed 291 291

Oct.- 15 WA Schools PPP EduWest Partners

Eight public schools are to be built under a 25 year DBFOM.

Four public primary schools and four public secondary schools have been earmarked

for development under the PPP model, similar to those ran in Queensland, New South

Wales, and Victoria.

Closed 322 322

Oct-15 Port of Darwin*Landbridge

Group

Chinese petrochemicals and port operator Landbridge Group has acquired the Port of

Darwin under a 99 year concession for A$506 million, representing a multiple of c.25

times EBITDA for an 80% stake in the port. The Northern Territory government will

hold the remaining 20% stake until Landbridge finds a suitable Australian buyer.

Landbridge has also committed to significant capital expenditure in the port as part of

the sales agreement, with A$35 million earmarked for spending over the next five

years and A$200 million over the next 25 years.

Closing 506 506

Oct-15 Iona Gas Plant

Queensland

Investment

Corporation

QIC has signed a binding agreement to acquire the Iona gas storage facility for $1.78

billion from EnergyAustralia.

Financial close is expected to occur before the end of the year.

Closing 1,780 1,780

Sep-15Macarthur wind

project

H.R.L. Morrison &

Co

H.R.L. has acquired AGL’s 50% stake in the Macarthur wind project. As part of the

agreement, AGL will continue to operate the wind farm and will retain the rights for

the energy produced until 2038. AGL is the offtaker under a 25-year power purchase

agreement (PPA), which is priced at A$79 per MWh. Malakoff owns the remaining

50% stake in the project having acquired this from Meridian in 2013 for A$140m. The

420MW has been fully operational since January 2013 and is located in Victoria,

Australia.

Closed 532 1,064

Aug-15Toowoomba Second

range Crossing Nexus

The project is a proposed 41km road bypass route to the north of Toowoomba. Upon

completion, the TSRC will form part of the National Land Transport Network,

connecting the Gore Highway at Athol in the west, to the Warrego Highway near

Helidon in the east, via Charlton.

The project will be delivered through one contractual package comprising design,

construct, finance, operation and maintenance (O&M) and toll collection. The O&M

and toll collection is expected to be for a period of 25 years following successful

commissioning of the TSRC.

Closed 1600

Recent infrastructure transactions

Recent infrastructure transactions (cont’d)

Date Target Bidder Deal Description Status

Deal

Value

(A$m)

Implied

Enterprise

Value

Aug-15Port Hedland

International Airport

AMP Capital

and

Infrastructure

Capital Group

The Port Hedland council awarded the 50-year lease for Port Headland

International Airport to AMP Capital and Infrastructure Capital Group in

August 2015 for $205m. The winning bidders will pay the Port Hedland

council A$165 million upfront and have pledged to invest an additional A$40

million to rehabilitate the airport over the course of the next five years.

Closed 205 205

Aug-15 Asciano Limited

Brookfield

Infrastructure

Partners L.P.

and

Qube Holdings

(Competing

bids)

A consortium led by Brookfield Infrastructure Partners L.P, a dual listed

Canadian electric transmission systems and infrastructure holding company,

has proposed to acquire Asciano Ltd, the Australia-listed national rail freight

and ports operator. The transaction is currently proposed to be conducted

via a cash plus share scheme of arrangement, and values the entire share

capital of Asciano Ltd at AUD 8.918bn (approx. USD 6.59bn, per USD on 16

August), representing a 12.8% premium to the share price on 14 August.

A consortium led by Qube Holdings made a competing provisional takeover

proposal worth $9.25 a share for the group on November 9, representing a

similar price as the Brookfield consortium offer. Whilst the Asciano board

have officially recommended the Brookfield proposal (in the absence of any

other official offer), the Asciano board have allowed Qube to undertake due

diligence.

The Australian Competition and Consumer Commission is due on February

18 to make separate rulings on these competing bids. Prior to the release of

these rulings, it has been reported that both consortiums are expected to

lodge all cash offers. Brookfield have also been reported to be considering

the divestment of its WA rail assets, or the Pacific National business of

Asciano in order to allay anti-competitive concerns expressed by the ACCC.

Pending

ACCC

ruling and

Asciano

board

decision.

8,918 8,918

Jul-15

Energy

Developments

Limited

Duet Group

Duet Group, the Australia-listed energy company, agreed to acquire the

entire share capital and merge with Energy Developments Ltd, the domestic

clean energy provider. Duet Group believes EDL is a strategic fit with the

company which provides long term, contracted energy infrastructure cash

flow and EDL's remote energy business is complementary to the group and

provides an attractive growth platform that enhance shareholders value.

Closed 1,381 1,360

Recent infrastructure transactions

Market insight – key players

Active Contractors, Operators, Investors

Why infrastructure?

• Income profile of assets

• Scale and portfolio asset allocation

• Yield in a low-interest environment

• Tax and the investment process

Why infrastructure?

Asset Class Amount

($billion)

%

Cash 170 13

Fixed income 280 21

Equity 648 48

Property 121 9

Infrastructure 63 5

Listed infrastructure 19

Australian unlisted

infrastructure

29

International unlisted

infrastructure

15

Other 53 4

Total investments 1,335 100

Source: APRA March quarter 2016

Asset allocation (funds with more than 4 members)

Highly competitive funding landscape

► Continual improvement:

► 20-25 active banks

► Banks are prepared to lend more

► ECAs very active – following local suppliers

► $5B+ of capacity for greenfield

► Commercial terms:

► Tenors of 7-10 years

► Margins trending down

► Gearing trending up

Debt M arket

► Unprecedented market interest

► Asset appetite:

► Brownfield economic infrastructure (including

patronage risk)

► Greenfield/PPP

► Brownfield PPP

► Main sources:

► Australian superannuation funds

► UK & European PPP investors

► Asian pension funds and trading houses

► North American pension funds

► Middle Eastern SWFs

► Equity pricing on downward trend

Equity M arket

Developments in the debt market

0

50

100

150

200

250

300

350

400

450

Basis

po

ints

Operating Margin Construction Margin

Debt pricing

competitive

Tax treatment comparison

Investor

T ype

Tax

treatment

of cash flows

Complying Australian

superannuation fund

M anaged investment trust

(M IT)

Domestic trade buyer

(company)

Returns of capital <

cost base

Reduction in cost base of

units (CGT event E4)

Reduction in cost base of

units (CGT event E4)

Reduction in cost base of

units (CGT event E4) but

complex

Interest from

shareholder loans

15% IWT at 10% 30%

Franked

distributions

15% Exempt 30%

Trust income 15% 15% 30%

Returns of capital >

Cost base/CGT on

exit

10% 15% 30%

Unfranked

dividends

15% DWT at 30% 30%

Copyright © 2014 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

Tax treatment comparison

Investor

T ype

Tax

treatment

of cash flows

Tax exempt foreign super

fund (FSF)

Sovereign wealth fund

(SWF)Foreign trade buyer

Returns of capital <

cost base

Reduction in cost base of

units (CGT event E4)

Exempt Reduction in cost base of

units (CGT event E4)

Interest from

shareholder loans

Exempt Exempt Subject to IWT at 10%

Franked

distributions

Exempt Exempt Exempt

Trust income

► Direct Holding (45%)

► Investment through a MIT

(15%)

Exempt 30%

Returns of capital >

Cost base/ CGT on

exit

► Direct Holding (45%),

► Investment through a MIT

(15%) if TAP

Exempt 30%

Unfranked

dividends

Exempt Exempt DWT at 30%

Copyright © 2014 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

Stapled Structure - Overview

Hold Co

Property

Assets

Stapled instrument

Hold Trust

Asset

Trust

Ops Co

Operating

Assets

Sub Lease

Land

Finance Co

Senior Debt

Loan

Key considerations

► Hold Trust & Asset Trust

► Flow through

► MIT & AMIT

► Third party and

investor financing

► Thin cap

► Hold Co & Op Co

► Operational activities

► Post-tax distributions

to investors

► Use of operating

trusts in some stapled

structures – changes

to section 102MD

Loan

Aus

Super Fund

Tax exempt

foreign

pension fund

Sovereign

Fund

Stapled Structure – ATO compliance focus

Aus

Super Fund

Hold Co

Property

Assets

Hold Trust

Asset

Trust

Ops Co

Operating

Assets

Sub Lease

Land

Finance Co

Senior Debt

Loan

► Accepted use of stapled

structure provided that

ATO methodology followed

in respect of:

► Pricing of cross-

staple lease and loan

► Allocation of

purchase price

between Hold Trust &

Hold Co

► Why does this matter for

super funds?

► Effective tax rate for

underlying entities

► Interaction with

consortium partners

& FIRB

► Impact on asset

valuation (and unit

pricing)

► Tax risk profile of

consortium entities

Loan

Tax exempt

foreign

pension fund

Sovereign

Fund

Stapled instrument

Securitised Lease / Licence Structure

Project

Trust

State

State construction payment

Investors

Equity contribution

ContractorConstruction cost

Licence payments over time

Licence receivables purchase price

Statecontribution

Key considerations

► Common structure for

social infrastructure

projects where the State

wants to make a

contribution to the

project

► Majority of the

construction cost is

deductible over the

project life through the

deductions for the

licence payments

► Impact on returns to

investors would need to

be modelled

Finance Co

Senior Banks

Project

Trust

Loan

Operations and

Maintenance

Q&A

Thank youPlease complete your

evaluation forms and return

them to the registration desk

© Author’s name, Company 2016

Disclaimer: The material and opinions in this paper are those of the author and not those of The Tax Institute. The Tax

Institute did not review the contents of this presentation and does not have any view as to its accuracy. The material and

opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries

in making any decisions concerning their own interests.