Intoll Group (ITO)

Shares / Stock Code

ITO

Stock Exchange / Sharemarket

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Intoll Group (ITO), formerly MIG was formed to enable private investors to participate in the growth associated with infrastructure assets. ITO invests in toll roads, with 407ETR considered a mature toll road. M7 is in the late stage of its ramp-up period; consequently, the high recent traffic growth is expected to moderate. Investors can trade Intoll shares on the Australian Stock Exchange (ASX).

MIG listed in December 1996 with investments being funded by issuing units, which included HLY, TCL (sold Dec 03), Westlink M7, M6 and 40% of Cintra in 2002 for $1.4B. In 2002, MIG increased its interest in 407ETR and raised $1.0B. MIG sold down its stake in Cintra via an IPO in Oct 2004, receiving $1.7B and a 30% direct interest in the 407 post IPO. In January 2010 MIG was split into MQA and ITO, with ITO holding interests in M7 and 407 and MQA holding the remaining underperforming assets.

Macquarie Bank created Macquarie Infrastructure Group (MIG) in December 1996. In January 2010, the management of MIG was internalised and it was renamed Intoll (ITO). Following the internalisation, ITO will pay no performance fees to the manager. Toll concessions typically allow price increases at CPI as a minimum; 407ETR (Canada) is unique in that ITO has commercial freedom to set the tolls.

Private vehicle users and industrial transport groups in Australia and the other countries where ITO operates all are customers of the toll road assets held by the group. Alternative traffic routes compete with the toll roads, but high congestion in modern cities makes demand relatively inelastic and strategically located toll roads tend to enjoy a natural monopoly. In Australia, direct equity market competitors with toll road interests TCL, RCY, BCS and CEU.

Westlink M7

The 40 km Westlink M7 completes a major section of Sydney's 110 km orbital network. It links the M5 Motorway at Prestons in Sydney's south-west, the M4 Motorway at Eastern Creek in western Sydney and the M2 Motorway at Baulkham Hills in Sydney's north-west. As such, the Westlink M7 forms an integral part of the overall Sydney orbital network, linking major employment, industrial and residential areas of western Sydney. The Sydney orbital network also acts as an outer bypass for traffic through Sydney as well as a primary link to inter- and intra-state highways.

Tolls on the Westlink M7 are based on actual distance travelled and are collected by a free-flow electronic tolling collection (ETC) system, with no cash collection or stopping at toll booths, resulting in significantly improved traffic flow. Tolls are calculated on a cents per km basis and are capped for trips longer than 20 km. Construction of the Westlink M7 commenced in 2003 and the road was opened to traffic on 16 December 2005, approximately eight months ahead of schedule.

Nature of the investment

Intoll currently holds a 25% interest in Westlink Group, the consortium that in February 2003 was awarded the rights to finance, design, build, operate and maintain the Westlink M7 toll road. Westlink Group holds a 34 year concession (including construction term) to 2037.

MIG originally acquired a 40% equity interest in Westlink Group in February 2003 for A$392 million. Upon opening of the Westlink M7 in December 2005, MIG exercised its fixed price option to acquire an additional 5% equity interest for A$47.35 million from Abigroup and Leighton Contractors. In September 2006, MIG acquired 2.5% from Abigroup for A$34.3 million; and in August 2008, MIG acquired a further 2.5% from Leighton for A$38 million.

On 27 February 2009, MIG completed the sale of its 50% interest in Westlink Group to the Western Sydney Roads Group (WSRG) for $805 million. WSRG is owned in equal parts by Intoll and funds managed by QIC Private Capital Pty Limited, a wholly owned subsidiary of Queensland Investment Corporation. Through WSRG, Intoll retains an effective 25% interest in Westlink Group.