PREMEDITATED MERGER - Controversy erupts over leaser of U.S. toll roads

Foreign firm part of public-private partnerships funding highway network
By Jerome R. Corsi - © 2007 WorldNetDaily.com - July 20, 2007
Investment analysts in New York and Australia charge that Macquarie, the Australian conglomerate leasing U.S. toll roads, is a "house of cards" that has made billions by spinning off the highway assets into over-valuated investment trusts controlled by the bank.

Macquarie has been an active participant in the "public-private partnerships" sponsored by Mary Peters when she was head of the Federal Highway Administration.

As documented on the FHWA website, Macquarie recently concluded long-term leasing deals on the Chicago Skyway and the Indiana Toll Road.

In both projects, Macquarie has partnered with Cintra Concesiones de Infraestructuras de Transporte, S.A., the Spanish investment consortium also involved in financing and leasing the Trans-Texas Corridor.

The criticism of Macquarie can be traced to a paper published last year by John L. Goldberg, an honorary associate at the School of Architecture, Design Science, and Planning at the University of Sydney in Australia.

Titled "The Fatal Flaw in the Financing of Private Road Infrastructure in Australia," the paper argued equity investors in Macquarie investment trusts are likely to suffer heavy losses by excessive valuations Macquarie makes of financed toll roads that are packaged together to be sold to pension funds and other institutional investors.

Goldberg also argued that government guarantees on Macquarie projects are often buried in the confidential part of toll road "comprehensive development agreements," such that the public taxpayer liability only comes to light when a toll road project fails.

Jim Chanos, a founding principal in the New York investment firm Kynikos Associates, has been equally critical of Macquarie.

Kynikos, founded in 1985, specializes in short-selling the stock of companies the firm believes are overvalued by the financial markets and likely to fall in price. Chanos distinguished himself as one of the most active critics of Enron prior to the company's fall.

In a May 30 radio interview with Australian talk-show host Mark Colvin, Chanos charged that the "Macquarie model" was seriously flawed.

"The bank scours the world buying assets," Chanos told the radio audience, "buying assets, everything from toll roads to bowling alleys and selling them into separate trusts that the bank controls. This generates triple fees for Macquarie Bank: one for the up-front purchase; a second for selling the assets into the trust; then ongoing management and performance fees from the funds."

Chanos charged that the loser in the scheme was the investor.

"If you look at the financial accounts of the trusts," Chanos explained to the Australian talk show, "you'll see that in almost all the cases the companies are using Australian re-valuation accounting which is legal under [Generally Accepted Accounting Practices] in your country to write up the value of the asset annually and put that through operating income and into equity."

Chanos argued that the practice only works in a financial environment in which cheap credit is readily available and valuations for infrastructure projects are generally rising.

"You need a credit environment that looks the other way, or you need a credit environment where the people lending are just lending on reputation or not numbers," Chanos said.

Eventually, he contended, the self-dealing between Macquarie and the Macquarie-controlled funds into which the infrastructure assets are sold is likely to crash.

"All I would tell your listeners," Chanos said in the radio interview, "is simply just go to the trusts, the financial statements, and simply extract out the asset re-valuation number, which is basically management's guess as to how much, what the asset's worth and just see what the cash flow looks like. In many cases, the cash flows are diminished or actually go negative. That's the simple litmus test to the Macquarie model."

Still, Chanos argued that despite the problem in the underlying cash flows, Macquarie makes hefty profits.

"Capital gains alone in the fiscal year 2007, just for flipping these types of assets into the trusts, accounted for half of the pre-tax income of Macquarie Bank," Chanos asserted.

Macquarie Bank has hit back strongly against both critics.

According to newspaper reports in Australia, Macquarie Bank executive Warwick Smith complained to University of Sidney Vice Chancellor Gavin Brown, demanding that the university dissociate itself from Goldberg over his critical research.

In response, Brown issued a statement clarifying that Goldberg is not an employee of the University of Sydney, though he has been given the title of honorary associate by the Faculty of Architecture. In his statement, Brown claimed Goldberg "speaks as an individual and the university accepts no responsibility for his comments which it does not endorse."

In the subsequent controversy that erupted in Australia, Goldberg was featured as a case study in "Silencing Dissent," a book critical of the administration of Prime Minister John Howard, published in Australia by Clive Hamilton, the executive director of a prominent Australian think-tank, and his co-editor Sarah Maddison.

In the book, Hamilton and Maddison charged that the Howard government used strong-arm tactics to challenge the tax status of non-government organizations and ruin the reputations of academics who were critical of governmental policies, including the sale of highway infrastructure leasing rights to private investment concerns in Australia.

Macquarie used a similar personal attack to discredit Chanos following the interview on Australian radio.

In a May 31 statement posted on the Macquarie website, the investment group charged that Chanos, "a hedge fund short-seller of equities," had an economic self-interest in advancing "incorrect claims" that could cause the stock price of Macquarie to fall.

When contacted for comment, Macquarie's New York representative referred WND to the company's online statement, in which Macquarie asserts that all assets acquired by funds controlled by Macquarie are valued directly from the market and subject to the approval of independent directors of the funds.

The published Macquarie response to Chanos also cited a May 25 Bloomberg report which quoted Chanos as saying Kynikos maintains a short position on Macquarie.

Short-selling is a Wall Street practice in which an investor borrows and sells stock the investor does not own, anticipating the stock will go down in value. The short-seller profits by buying shares at a lower price to replace the shares that originally were borrowed and sold at the higher price.

Short-sellers lose money if the price of the stock increases and the cost to purchase shares to replace those borrowed is greater than the price for which the borrowed shares were sold.

Macquarie Infrastructure Group is a separate subsidiary from Macquarie Bank.

The website of Macquarie Infrastructure Group bills the company as "one of the largest private developers of toll roads in the world."

Read more in World Net Daily

A TRANS TEXAS CORRIDOR NAFTA PARABLE

THIS PARABLE IS DEDICATED TO RICK PERRY, DAVID DEWHURST, TODD STAPLES, FRANK CORTE, GREG ABBOTT and all the elected officials in Texas who took Campaign Contributions from H.B. Zachry and worked diligently to get the Texas Transportation Code and Eminent Domain Statues changed to enable construction of the Trans Texas Corridors and similar toll initiatives.

The Trans Texas Corridor initiative seems more like this parable:
Once upon a time let's say that I discovered that it was closer for me to go through your yard than it was for me to go around the block on the public street to conduct my business in the land beyond your homestead. So I begin to habitually take a short-cut through your yard. I make my own path through your shrubbery, detouring around your house and garage and walk through your property to deliver goods to my clients who live far beyond your lot line.

After a while, I complain about how much time I'm losing having to go between your house and garage. For me, I'd get there easier and faster if your house weren't in my way. I mean, after all, why should I be inconvenienced having to detour around your house when I have important business to conduct on the other side of your property!

Under current law, I can't just legally tear your house down. But I know some folks who owe me some favors. I do some things for some other folks so that they'll also owe me. I approach a man who owns a paving company with strong ties with the agency which regulates planning and construction of public paths. Then I find some "business men" and show them how they can profit if your house were gone and we had a direct path WE CONTROLLED through your property and this man's paving company poured the asphalt. Together we start dreaming about this path. Wouldn't it be even better, someone says, if there are concessions along the path. If they can't get off the path to patronize the businesses along existing streets, that will be better for us because we'll make more money. So while the "you scratch my back I'll scratch yours" gang is busy revising the Transportation and Property Codes of the government, we have them add in a clause allowing exercise of eminent domain for construction of a facility which serves users of the toll facility.

By scratching backs and showing folks how they can PROFIT from my scheme, I've moved from just cutting through your bushes and walking between your house and garage as I cut through to the other side of property to conduct my business on the other side of you to actually getting the law changed so that I can have your home torn down and land confiscated by the state. I can also get your neighbor's land condemned by eminent domain because it's contingent to a toll corridor and is NEEDED TO BE USED FOR A CONCESSION WHICH WILL BE USED BY USERS OF THE TOLL PATH.

Now, there are a lot of places in our town where more people actually need a paved path more than this one. There may even be some places where they need a bridge. But this project gets priority because I agree to pay for the clearing, demolition of your house, and the concrete to pave it. I get a 50 year right to set the rates for the toll and operate all the concessions along the path. I get the government to underwrite a lot of the studies and planning for this project because they are in the business of overseeing planning projects.

After we pour all this concrete the neighborhood looks different. Because it looks DIFFERENT, some people call it progress.

You no longer live there. Your next door neighbor no longer lives in the town. The land now belongs to the state. Your neighbors get their tax bills after completion of this project. The school district and county and city have divided their annual budgets among the number of remaining homeowners. Everyone has a tax increase. There is still a shortfall because even with a tax increase, there is less land available and when they need to build a new school, the price is higher for the land. But that's ok. Because it is now easier for the folks I did business with on the other side of your property to go through the path and not have to detour around where your house used to sit. No one actually stops on your land to do anything. They use the concession where your next door neighbor used to live as they travel through. But they don't patronize any of the businesses on the street where you lived. When they carry packages along this toll road to deliver to your former neighbors, they pay tolls. But that's o.k. because the pass the additional cost along to the buyers.

Oh, I forgot one thing. When I sell the VISION for building this toll path corridor, I point out that we need A MUCH WIDER RIGHT OF WAY than is actually called for right now. We need to plan for 50 years in the future. So we advise the "I'll scratch your back if you scratch mine gang" to write the law so that instead of the land that the path needs being condemned, they condemn three times that much land. We won't use it for 50 years, but that's o.k. We'll control it. It goes out of the local tax base too and more folks lose their homes. Those that remain have to absorb an even larger percentage of the taxes formerly paid by you and your neighbor. But I'm content.

I'm given an award by the City Father's for being a "Catalyst of Progress." I have more money, so I give a little of it to a charity run by one of the folks who helped me get the laws changed to Legalize all the illegal obstacles to progress that I decided needed to be eliminated so that I'd be enabled to "get a return on my investment" as I instigate getting this toll path built so that I'll not to be inconvenienced by having to detour around your house. I'm now known as a "humanitarian."

Our project has utilized public governmental planning agencies who usually plan public projects. They haven't had time to concentrate on public works projects except for our path. So the street that runs in front of the property where you used to live becomes filled with potholes and is actually dangerous to pedestrians and drivers. The tax base is less. The businesses on that road have closed down because they lost business when people started patronizing the businesses on the toll path. We approach the city and tell them that we can solve their problem. We'll use a bit of the money we made operating this first toll path to repair roads which are currently PUBLIC ROADS if they are turned into toll roads and we are given 50 years to operate them so we can get a return on our investment.

This time there are activists who are prepared for us and manage to demand this project be put to a vote. But it is obvious that the road will remain impassable because now the tax base of the town has dwindled to such a state that there REALLY IS no money in the budget to pave the public road. The toll initiative on the ballot passes by only a few votes, but I have a new project to profit on with my friend the paving contractor. The public street is now a toll road and we are studying where we want to locate the concessions.


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There will be goods shipped through Texas from Mexico to other states whether or not the TTC is constructed. Some folks are wondering TEXANS should give up our land and finance the TTC by paying tolls and higher property and school taxes! Don't we have other more important transportation needs that need to be met right now? TDoT, elected officials and transportation planners in COGS tell us that the TTC is necessary because we need to plan for 50 years in the future.

Planning for the future is fine when you have your CURRENT HOUSE IN ORDER. People without food on the table can't throw their entire annual budget into a retirement account. This initiative is one that transfers resources away from meeting VITAL TRANSPORTATION NEEDS in communities all over Texas right now! DFW is on the brink of having EPA shut down economic development. We have to address air quality along with transportation. Every urban center in Texas needs SOME transportation solution and this TTC snowgoose doesn't meet ANY OF THEM. But it's true, business interest shipping goods from Asia to Mexican ports will get those goods to market somehow. They want us to cut them a direct, less-costly-for-them route. We must fight for OUR NEEDS TO BE ADDRESSED before their comfort! If we build a corridor or highway or rail line for US, and they use it too, that's normal. That's not what they are asking. THE TTC is not a transportation plan to meet the needs of Texans. Instead of concentrating on this state's highest priority transportation needs, we're expected to forgo what we need to build this rail, utility and super toll highway from Laredo to Oklahoma to facilitate shipping through Texas.

Let's end this "good night" story with a quote from a lady who addressed the TDoT officials at the Dallas TTC Hearing: "What part of stupid do you think we are?"