Young IT entrepreneur locked in BrisConnections standoff: Gottliebsen

It has turned into a classic Mexican stand-off with each of the three players pointing loaded guns at each other.

In one corner we have the Queensland Government, which is in grave danger of losing a magnificent piece of infrastructure if the company is wound up. If the tab for the $4.8 billion airport toll road needs to be picked up by the Government, then a lot of other projects will lose out.

In another corner we have young IT entrepreneur Nick Bolton who wants to wind up BrisConnections. He knows the risks but expects to be well rewarded because the other players can’t afford to let that happen.

Finally we have BrisConnections, which told unitholders that if they wound up the company and abandoned the project, the costs would be enormous, particularly as the group has a paper loss of about $500 million on interest rate protection instruments that would be realised on a wind up. Ut has told shareholders that the huge asset deficit would require the calls to be made to cover the losses even though the project was dead. This is a very powerful weapon.

BrisConnections’s board has published a set of detailed projections saying that if the calls are paid and the project proceeds, then shareholders will get a good return … albeit less than originally expected. But that’s a lot better than paying calls into a defunct company with no hope of return. Of course those estimates depend on the traffic flow. The directors may well be right about the returns, but toll roads have a habit of coming in way under initial estimates.

So who is going to blink first? Will it be the Queensland Government? Will it be the BrisConnections unitholders led by Nick Bolton? Of course, Macquarie and others that have stakes in the project may out-vote him anyway.

Sitting across the street watching the stand off are the foreign banks. They do not want to lend BrisConnections $2.9 billion because no one in their right mind would consider such a project in today’s environment. But they will honour their obligations. If Bolton succeeds in winding up the company the banks will have an exit, so they are barracking for him.

Macquarie wanted their co-underwriter Deutsche to agree to waiving call rights against small shareholders in exchange for the small shareholder votes. Deutsche also wants out, so it would not agree. Deutsche is also privately barracking for Bolton.

Nick Bolton wants to be bought out by the Queensland Government (or anyone else for that matter) at a nice profit. Any buyer will also have to make the same offer to all other shareholders. The Queensland Government can punt on Macquarie’s ability to block the wind up motion.

Macquarie has skilled people, and they may well win. But if Macquarie fails and the project is no more, then the Queensland Government has the most to lose, although shareholders who lose their house might disagree.

As I have been writing in the past, the Queensland Government needs to weigh up the risks and seriously consider doing a deal with Macquarie and Deutsche that reduces their underwriting liability and then go in and buy out the small shareholders. If the sums done by the BrisConnections board are right, they would not only keep the project but make some money at the same time.

This article first appeared on Business Spectator