Saturday, October 22, 2005

Macquarie's infrastructure strategy draws inspiration from 'Maximus Tollus'

Who said cowboys can't yodel

October 22, 2005

By James Bone
The Sydney Morning Herald (Australia)
Copyright © 2005.

Monday, October 17: On the way to Gstaad to meet my wife's billionaire, I pondered the brilliance of Macquarie's infrastructure strategy.

By buying the world's toll roads, airports, pipelines and stock exchanges, Macquarie owns: (a) some of the purest monopolies on earth; (b) with the greatest barriers to entry; (c) and the most cash-generative cash cows in the western world.

I was travelling through a long, dark tunnel between Austria and Switzerland, the kind that doesn't have a light at the end of it. This is the sort of tunnel Macquarie would like to buy.

It's a long version of Sydney's Cross City Tunnel, another asset that appeals to Macquarie. The cross-city tunnel is a near-perfect monopoly. One reason is that the Roads and Traffic Authority has been so co-operative.

The RTA has a share of the profits of the tunnel, so it has a sound commercial reason to make motorists sit at 10-minute red lights in dead-ends in Woolloomooloo.

In this light, one has to admire the former premier's brazen opportunism in taking a job at Macquarie. Bob Carr, who doubles as Australia's pre-eminent scholar of ancient Rome, understands tunnels; the cross-city tunnel was his baby.

Indeed, I understand that Mr Carr learned the economics of public infrastructure from the ancient Romans, chiefly the Emperor Hadrian, who built the wall separating Britons from the Picts. A gate keeper called Maximus Tollus forced the locals to pay a toll, a lively little business that he took back to Rome, where he levied a toll on chariot drivers along the Appian Way.

The chariot drivers were furious, of course, as they'd already paid their taxes - but Maximus avoided a public flogging by offering them shares in his new company, Maximus Tollus Public Infrastructure, whose shares rocketed. Everyone was happy, except those who got no shares. One isn't suggesting Mr Carr is a poacher turned gate keeper like Maximus Tollus. Rather, he is the perfect man to advise Macquarie on its takeover of the world's tunnels and roads because he knows tunnels. Mr Carr knows that no Roman in his right mind would have built an aqueduct to compete with Maximus Tollus's.

Tuesday, October 18: In short, Macquarie will soon become the richest bank on earth. The great thing is that it securitises its roads and airports as investment funds. Macquarie thus gets a share of the toll, plus the initial charge, the performance fee, and the annual management fees for running a road or two that used to be paid for out of tax revenue. The punters thus get hit twice. Maximus Tollus would have been delighted!

I didn't get to Gstaad yesterday. I took a diversion to a tiny Swiss village, with a bar that described itself as the World's First Karaoke Yodelling Club. You can choose any song, but you have to yodel it.

I found it most refreshing. When they discovered I was Australian, I was obliged to yodel something. I chose My City Of Sydney, which went down well.

Wednesday, October 19: Anyway, I got to Gstaad and prepared to meet Grace and her elopee, Roger, who apparently owns 10 oilfields in Texas.

I waited in the library of the Matterhorn Hotel, vaguely thinking about my share portfolio. Yogi, the Phantom Day Traders' chief chartist, sent a message that I own shares in three companies that list on the ASX tomorrow: Hodges Resources, Resource Finance & Investments and Incremental Petroleum. I didn't hold my breath. I know nothing about any of these companies, or how I acquired them. I got the shares through a mate who knows a mate who's mates with a bloke on the board of Hodges, who happens to be a mate of a mate on the board of Incremental, etc. That's the great thing about Australian business: we're all mates.

Shortly Grace appeared; our daughter Matilda sort of tiptoed in behind her, shy and nervous.

Grace kissed the air beside my cheek, and Matilda asked: "Daddy, when are you coming home?" That was an interesting twist, given that I thought we lived in Australia.

We waited. Then in walked an ancient, bearded dwarf, circa '95, wearing a white Stetson, a leather jacket, cowhide trousers and spurred boots. I looked nervously about his person for a lasso.

"James, this is Roger," said Grace, all smiles.

Then the drawl: "Wee-eell, dang, it's way past time we got together Jerm, and, ya know, talked turkey, chewed the fat. And shared notes on this great little lady, eh? Eh? Eh? [elbow jabs]. Cos ah got me a great little lady 'ere, and it's all thanks to you Jim-Bob, and ah thank you from the bottom of mah heart, so help me God."

It was interesting insofar as Roger failed to explain even where they lived, on what terms, and why. He did, however, have a great portfolio, with some very exotic investments: a Cuban Emerging Markets Fund and a Vietnam Emerging Markets Fund, which had been dormant for 10 years.

Thursday, October 20: I did nothing. I didn't even check Hodges and Incremental.

Friday, October 21: Grace offered to meet to discuss her arrangements with Roger. I told her I'm all ears, and fled to a yodelling bar.

Copyright © 2005. The Sydney Morning Herald.