A maze of companies obscures the money trail in Plenary’s PPP deals, writes Michael West.
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 $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 the 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 fewer than 20 public private partnership (PPP) deals in Australia and Canada.
Their prolific deal-making even thrust O’Rourke and his team into Dealogic’s global top 10 last year for project finance transactions – in the elite company of Exxon and the Russian oil giant Gazprom.
Having whipped the venerable 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 though, 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.
Zero transparency. As one privatisation source told Weekend Business, 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 whatsoever of trusts holding billions of dollars of sensitive government PPP assets.”
Plenary itself can hardly be expected to disclose any more than it has. Its chief, 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,” O’Rourke said this week. ”Each project has its own disclosure regime. [Our reporting] includes full transparency in the way the project is financed.”
The Department of Treasury and Finance and Partnerships Victoria – which look after PPPs – were not so 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, that is, exceeded its assets.
This doesn’t mean the Plenary parent company is in financial trouble. As 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. Although some projects have performed better than others, the only failure has been that of the South Wharf Retail project associated with the Melbourne Convention Centre following the collapse of the 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 Tax Office action, again deferred by the Federal Court last week, is against Plenary Conventions Tower Pty Ltd and relates to a tax debt of the convention centre hotel and retail business of Plenary Group after the Austexx collapse. It followed the placement of two Plenary Group 25 per cent-owned associates, South Wharf Retail Pty Ltd and South Wharf Tower Pty Ltd, into external administration in November 2011.
”The matter is before the courts and I can’t really comment,” O’Rourke said. Although he did explain that the group had left cash in the vehicle for the tax to be paid but the ”lenders have locked up the funds”.
Given the 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?
That is now a matter for the courts. ”All of our projects are run by non-recourse stand-alone businesses established to operate and maintain the PPP assets,” a Plenary spokesman, Kelvyn Lavelle, said this week. ”These lodge their financial statements with ASIC and are fully compliant.”
There is no doubt that the failure of Austexx has put some pressure on Plenary, though. O’Rourke said the South Wharf Retail deal had been refinanced by Plenary and its joint venture partner Colonial First State.
”We joined with CFS to buy out Austexx’s interest,” he said. ”Our ownership interest is in a new vehicle which again has project finance specifically secured against the South Wharf asset.”
O’Rourke declined to be drawn into specifics about the increased debt exposure taken on by Plenary Group except to say that it was north of $100 million. A recent press report, unconfirmed, put the figure at $160 million.
Whatever the exposure, it is only relevant to the group’s asset base and capacity to repay. Yet thanks to the poor disclosure regime there is no public information about this.
Given the tax dispute and the fact that the convention centre company is operating under a high-risk capital structure after receiving $370 million of government funding, there is even more reason for full transparency by government of its PPP partner’s accounts. The City of Melbourne might also explain the fate of its $43 million investment in the South Wharf Retail concept.
From the information which is now available, 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 confirmed yesterday that as Plenary Group was the holder of an Australian Financial Services Licence its financial statements did not have to be disclosed, despite its status as a ”large proprietary company”.
Strangely, three of its subsidiary companies lodge their audited accounts with ASIC annually. Plenary Group Pty Ltd certainly seems to qualify as a ”large proprietary company” but it has never lodged, at least visibly. ASIC said that its 2010 accounts had been filed but were not available to the public.
In any case, as O’Rourke said, the real ”game is in the trust”. Plenary Group was merely the corporate trustee. The group’s assets in Canada, he said, were structured along similar lines. Deutsche Bank, which supplies the debt for Plenary Conventions, also has equity.
The important point is how much of the $400 million of debt, which had been arranged by its senior partner in the convention centre project (Austexx), Plenary has guaranteed.
Plenary Group is one of the largest (if not now the largest) participants in the Australian and Canadian PPP markets. Its financial position is of vital interest to Australian and Canadian governments.
Plenary Group Unit Trust effectively owns all its assets and distributes its income to the four individual majority owners and two corporate minority owners.
Some of the largest government PPP assets in Australia and Canada therefore are majority-owned and controlled by four individuals – the founding members of the Plenary Group, Messrs O’Rourke, Oppenheim, Wilson and Ms Cox, who is the widow of the deceased founder Jim Cox.
According to ASIC searches, Plenary Conventions Holdings Pty Ltd (the former 50.1 per cent owner of Plenary Conventions), has recently sold down 39.9 per cent of its shares to the Canadian fund manager CDPQ. This means that the convention centre is now 30.1 per cent owned by Plenary Conventions and 20 per cent owned by CDPQ with the other 49.9 per cent owned by a New Zealand-based institutional investor.
O’Rourke says the equity sales to market professionals are not part of a prudent sell-down to address risk but rather reflect the success of Plenary Group. They are a vote of confidence in the company which owns the convention centre.
Despite their spectacular success, there are now signs of timidity or consolidation. O’Rourke says Plenary will deploy the cash from recent asset sales to expand the group’s interests elsewhere.