CORPORATIONS FIGHT EACH OTHER OVER ILLEGAL TOLLED ROADS

$400m stoush over EastLink

Eric Johnston
September 8, 2009 - 12:00AM

CONNECTEAST is facing a $400 million-plus legal battle with Leighton Holdings, one of its biggest shareholders, over claims the toll-road operator misled the construction giant with inflated traffic forecasts.

ConnectEast, which operates Melbourne's 39-kilometre EastLink toll road, is now engaged in a $421 million capital-raising to pay down debt.

In a claim filed with the Victorian Supreme Court, Leighton subsidiary Thiess John Holland, which designed and built the tollway, argues it was misled over traffic numbers, which have fallen short of expectations since the road opened in June last year. Critically, the traffic forecasts underpinned Thiess John Holland's negotiations for a bonus payment for early completion.

Thiess John Holland also said the initial traffic forecasts provided the incentive to accelerate work on the toll road at an increased cost.

It noted ConnectEast continued to support its initial traffic forecasts from the opening of the toll road until about the middle of June this year, then revised down forecasts last month.

ConnectEast's initial estimates forecast that on average 258,000 vehicles would use the toll road daily by last year. But its latest monthly update, released yesterday, showed about 159,000 cars a day travelled on the road last month.

''The actual traffic volume for EastLink upon commencement was significantly less than the traffic volume representations,'' Thiess John Holland said in a statement of claim.

The lower-than-expected traffic figures recently prompted ConnectEast to write off about $400 million of the value of its toll road, which crosses Melbourne's south-east.

Legal sources said Thiess John Holland was likely to seek more than $400 million in damages.

Thiess John Holland acquired 226 million units in ConnectEast last March under a deferred equity deal, with its initial investment now substantially under water.

While the legal action risks putting investors offside, ConnectEast recently noted it was at loggerheads with Thiess John Holland over the early completion bonus. In the recent roadshow for its $421 million capital-raising, ConnectEast said it was in a dispute with Thiess John Holland but, based on the information it had at the time, it would not result in a material liability.

ConnectEast said it had also issued a counterclaim against Thiess John Holland, but was not specific.

ConnectEast last month raised $309 million from institutions, with the retail component of its capital raising due to close on September 21.

A spokesman for ConnectEast said last night that the toll road operator would vigorously defend the claim, but refused to comment further. A Thiess John Holland spokesman also refused to comment.

Because of the heavy write-downs, ConnectEast recently posted a full-year loss of $531.5 million, compared with a loss last year of $9.3 million.

While the latest capital raising gives the company breathing space for its looming debt repayment, it still faces $810 million more debt to be repaid or rolled over by November 2012.

This story was found at: http://business.theage.com.au/business/400m-stoush-over-eastlink-20090907-fef9.html