Letters of credit (L/Cs) will be a key component in the financing of a 1420 km rail link between Alice and Darwin, Australia. The Build Own Operate Transfer (BOOT) project involves the construction of the railway and operating the Adelaide-Alice Springs-Darwin railway business for 50 years.

Construction in the A$1.3 billion project is scheduled to begin in May and is to be financed by a combination of government contributions, equity and debt. The construction contractors, operators and Australian institutional equity participants are providing the equity in the form of L/Cs.

Contractors Macmahon Holdings have orders worth A$125 million in the project. The company also has a 6.2 per cent shareholding in the BOOT company - requiring the contribution of A$15.3 million of equity combined with some contingent ramp up support equity. The L/Cs - provided by financial services group ANZ as part of Macmahon's debt facility - will convert to equity when construction is completed in early 2004.

Macmahon has embarked on an extensive financial restructuring programme, and according to CEO Nick Bowen, the company's new financing arrangements "should prove to be a turning point" in this process.

The design and construction of the rail link will be undertaken by the ADrail Integrated Joint Venture which consists of Halliburton/Brown & Root (50 per cent), Barclay Mowlem (20 per cent), John Holland (20 per cent and Macmahon (10 per cent). According to Bowen, "Macmahon's equity contribution will be funded from proceeds from the ADrail design and construction contract."

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