THEY are the hotshots of structured finance, the corporate overlords of our public hospitals and high-security government buildings, army bases, courthouses and convention centres.
They preside over more than $10 billion in public assets. They have stormed the world of government privatisations, yet few have heard of John O’Rourke, Ray Wilson and Paul Oppenheim.
The three investment bankers parted way with Dutch giant ABN AMRO in 2004 and set up Plenary Group to invest in, develop and operate privatised assets in partnership with governments.
Just eight years down the track, Plenary has won no less than 20 public-private partnerships (PPPs) in Australia and Canada.
Having whipped Lend Lease in the beauty parade for the Melbourne Convention Centre mandate in 2009, a $1.4 billion deal, Plenary now finds itself head to head with Lend Lease again in a bidding duel for the new Sydney Convention Centre.
Unlike many of its rivals in the infrastructure space, Plenary is not listed on a stock exchange where its financial statements are there for all to see, and where it can access public equity. Although a few entities within its burgeoning corporate empire do disclose, Plenary’s ultimate financial position is unknown. A byzantine maze of companies winds to a cul-de-sac: a private trust controlled by the three Plenary principals and associated entities.
As one privatisation source told BusinessDay, the use of trusts at the top of corporate structures is a ”massive loophole which promotes a totally opaque disclosure regime and leaves the public (and government) in the dark as to the true financial position of hundreds of high-profile corporate groups. As a result, there is no public disclosure of trusts holding billions of sensitive government PPP assets.”
Plenary itself can hardly be expected to disclose any more than it has. Its chief, Mr O’Rourke, was helpful in providing detailed responses to questions, at least within the remit of his firm’s legal and regulatory obligations.
”We defer to the government,” he told BusinessDay this week. ”Each project has its own disclosure regime. [Our reporting] includes full transparency in the way the project is financed.”
Partnerships Victoria – the body that looks after PPPs – and the Department of Treasury and Finance were less forthcoming. Both were unable to confirm this week if they even had access to the ultimate accounts of Plenary. Some responses to questions, said a spokeswoman, might ”take a few days”. Transparency however is a serious responsibility of government, particularly in light of such large financial transactions involving public assets.
Like other PPPs, Plenary’s structures are highly leveraged. The 2011 financial accounts for the Melbourne Convention Centre, owned by Plenary Conventions Pty Ltd, were lodged late last week. They showed such aggressive debt levels that the company was technically insolvent. Its liabilities exceeded its assets. This doesn’t mean the Plenary parent company is in trouble. As Mr O’Rourke says, infrastructure assets are often highly-geared. The Convention Centre PPP was performing beyond expectations, he said.
Also typical of infrastructure projects, each of Plenary’s projects is housed in its own structure. The debt is project financed, non-recourse, so if one went belly up it would have no effect on the others. And so far, Plenary’s record is spotless, well almost. The only failure has been the South Wharf Retail project associated with the Melbourne Convention Centre following the collapse of the financially-troubled Austexx DFO Group – one of Plenary’s partners.
Yet this has led to a peculiar situation where the Tax Office is trying to wind up a company which is 100 per cent-owned by Plenary Group on the ”grounds of insolvency” because Plenary is refusing to pay $2.35 million in overdue BAS payments.
The ATO action, deferred by the Federal Court last week, is against Plenary Conventions Tower Pty Ltd (PCT) and relates to a tax debt of the Melbourne Convention Centre hotel and retail business of Plenary Group in the wake of the Austexx collapse. It followed the placement of two of Plenary’s 25 per cent-owned associates, South Wharf Retail Pty Ltd and South Wharf Tower Pty Ltd, into external administration last year. ”The matter is before the courts and I can’t really comment,” Mr O’Rourke said. Although he explained the group had left cash in the vehicle for the tax to be paid but ”lenders have locked up the funds”.
Given the state government had tipped in $370 million for the development of the Convention Centre, was it suitable to allow Plenary’s related companies to be wound up for not paying tax?
Given the tax dispute and the fact the Convention Centre company is operating under a high-risk capital structure after receiving the $370 million of government funding, there is even more reason for full transparency by government of its partners’ accounts. The City of Melbourne might also explain the fate of its $43 million South Wharf Retail investment. From the available information, the company at the top of the corporate tree (Plenary Group Pty Ltd) does not reveal its financial position.
A spokeswoman for the Australian Securities & Investments Commission (ASIC) confirmed yesterday that as Plenary Group held an AFSL licence, its financial statements did not have to be disclosed, despite its status as a ”large proprietary company”.
Plenary Group is one of the largest (if not the largest) participants in the Australian and Canadian PPP markets. Its financial position is of vital interest to Australian and Canadian state and federal governments. Some of the largest government PPP assets in Australia and Canada therefore are majority-owned and controlled by four people – the founding members of the Plenary Group, Messrs O’Rourke, Oppenheim, Wilson and the widow of founder, Jim Cox.
According to ASIC searches, Plenary Conventions Holdings Pty Ltd (the former 50.1 per cent owner of Plenary Conventions), has sold down 39.9 per cent of its shares to Canadian fund manager, CDPQ. Mr O’Rourke says the equity sales to market professionals are not part of a prudent sell-down to address risk but rather reflect Plenary Group’s success. They are a vote of confidence in the company which owns the Convention Centre. Despite their spectacular success, there are no signs of timidity or consolidation. Mr O’Rourke says Plenary will deploy the cash from recent asset sales to expand the group’s interests elsewhere.