Friday, December 29, 2006

Goldman Sachs pays lip service to glaring conflicts of interest in toll road deals

Toll Road advisor jumps on road to gold

Goldman Sachs fund has $6.5 billion to invest

December 29, 2006

Bloomberg and Times staff
Northwest Indiana Times
Copyright 2006

Goldman Sachs Group Inc., the investment bank that advised Indiana on its historic Toll Road lease, has raised $6.5 billion for its own fund to invest in toll roads other infrastructure projects.

GS Infrastructure Partners will focus on "larger investment opportunities in developed markets," the New York- based firm said Thursday in a statement.

Those will include toll roads, airports and ports as well as regulated gas, water and electric utilities, according to the statement.

Goldman Sachs reaped a $20 million fee earlier this year from the state of Indiana for marketing the 157-mile Indiana Toll Road to investors and providing other investment banking services.

A Spanish-Australian consortium, Cintra Macquarie, submitted the winning bid of $3.85 billion to operate and collect tolls on the Indiana Toll Road until 2081.

At the time, Macquarie predicted the Toll Road would yield a 12.5 percent annual return for investors.

Those kinds of returns have sparked interest among U.S. investment firms in toll roads and other infrastructure. Up until now, foreign firms have dominated the field.

Goldman put $750 million of its own money in the new infrastructure fund. Other investors include pension funds, banks and insurance companies.

City and state governments in the U.S. oversee about $1.7 trillion of roadways, and billions more in other assets, from subways to sewers.

At least 13 U.S. states may hire private companies to help build and operate $34.5 billion in toll roads spanning 2,700 miles, according to the Federal Highway Administration.

Securities firms investing in such projects while also seeking advisory fees from government officials have raised concern in Chicago and other cities that the two businesses may be at odds.

Goldman was among 48 firms that registered interest in leasing the 537-mile Pennsylvania Turnpike, according to a list released by the state this week. Other rivals competing for the business include Bank of America Corp., Bear Stearns Cos. and Merrill Lynch & Co.

Pennsylvania Governor Ed Rendell is considering the move to plug a $1.7 billion shortfall in transportation funding.

Goldman had hoped to advise Chicago on the potential sale of Midway Airport after helping the city lease the Chicago Skyway two years ago. Dana Levenson, the city's chief financial officer, decided Goldman's plan to buy an airport company in Europe that might eventually bid for Midway disqualified the firm from the Midway assignment.

The firm said in a statement in July that it handles the conflict-of-interest question by examining each situation individually.

"We take conflict and business selection issues seriously," spokesman Michael DuVally said at the time.

Times Business Writer Keith Benman contributed to this story.

© 2006 The Northwest Indiana Times