Michael Pascoe, associate editor of Eureka Report, writes:


Another day, another massive international infrastructure splurge by Macquarie Bank with the vendor government again picking up vastly more on the sale than expected, but – shock, horror – it seems Macquarie didn’t make the highest bid.

This time it’s APRR (Autoroutes Paris-Rhin-Rhone) – the motorways around Paris and linking to the west. It was one of three French motorway operators sold off overnight for 14.8 billion euros, considerably more than the 11 to 13 billion euros the French Government had been expecting, as the BBC reports.

Even by Macquarie’s burgeoning standards, this one is large – Macquarie entities will have half of the third biggest tolled motorway operation in Europe and be up for a total funding requirement of up to 7.1 billion euros – A$11.3 billion – if they succeed with their offer to take out the minority holdings. Macquarie Infrastructure Group’s release to the ASX is here.

The bigger surprise though is that the Macquarie Infrastructure Group/Eiffage consortium managed to be the second highest bidder and still win.

According to French newspaper Les Echos, Macquarie/Eiffage bid 61 euros per share for the government’s 70.3% of APRR, but Spain’s Cintra offered 62 euros. Les Echos says Cintra was penalised for not having a French partner in the bid. So much for a common market v French nationalism.

The greater amount collected than expected for the motorways is typical of this phase of infrastructure privatisation overseas – and why Macquarie has been forced to go hunting internationally as Australian governments have woken up to the real potential value of their assets to the Macquarie financial engineers and their competitors.

The deals are being fuelled by a tsunami of investment cash washing around the world looking for relatively high-yielding, long term investments with in-built protection from inflation. Australian superannuation funds are very much part of that hunt for deals.

The result of so much competition for the assets though is that investment returns are falling. The great deals like Sydney’s Hills Motorway are turning into dubious propositions like Sydney’s Cross City Tunnel.

And still there’s the sleeping issue that worries some professional investors: the mountain of debt Macquarie’s financial engineers employ. For example, APRR “efficient financing structure” results in a net debt to enterprise value of 89%.