Macquarie Infrastructure Group, partner in the long-term Indiana Toll Road “public-private partnership,” released some financial results yesterday. The document illustrates how much riskier the market perceives such deals to be. The details once again point up the fact, then, that such long-term infrastructure leases aren’t a good way for states and cities to get out of their current budget woes.
Eight months ago, Macquarie figured that its “discount rate” on the Indiana road was 10.01 percent.
That is, that’s how much in annual return Macquarie wanted for its shareholders as compensation for taking on the risk of holding the road asset, plus the normal return that shareholders would expect on any investment.
That estimate gave shareholders a value for the road — after debt and all the rest — of 344 million Australian dollars (AUD).
Today, though, Macquarie figures that the “discount rate” us up nearly two and a half full percentage points, to 12.50 percent. That is, Macquarie figures that the road is a more risky asset — meaning, roughly, that profits and the value of the road are less certain.
That helped bring the value of the asset to shareholders down to AUD$189 million, a full 45 percent.*
This valuation could still be too optimistic.
But let’s say that the figure is accurate — although frankly, it’s hard to say that any asset value is accurate when it can swing so much based on randomly plugged-in numbers (which is the reason that we’re in this asset-based global credit crisis in the first place).
These figures show two things.
One, the market thinks that it’s far, far riskier today to do a deal like the Indiana Toll Road than it was two years ago.
In fact, it would be impossible to get the real interest rate that creditors would demand today, because there aren’t any such creditors. That’s why Britain has had to bail out its Olympics private-public partnerships and, now, some toll roads of its own.
Two, such wildly fluctuating valuations show that even in the good times — whatever those may be — state officials can’t really be sure that they’re getting a good deal on long-term asset sales.
Obviously, Macquarie wasn’t good at this, either — and vastly overpaid for Indiana, which means that Indiana got a good deal here.
But the opposite could happen in the future, meaning not only that states would have handed over generations’ worth of toll revenues for a one-shot cash infusion, but that they would be shafted in the process, as well.
Moreover, it probably will happen, as desperate states look for something to sell, and as desperate banks look for a profit on something.
*Currency fluctations are in play here, too, but obviously, the discount rates matter a lot.