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The N3 concession contract, involving capital expenditure in the region of R3,5-billion and which was signed with the NRA in May 1999, marked a major investment and palpable vote of confidence in the future of South Africa.

Financial advisors to N3TC are Rand Merchant Bank Limited (RMB), the Sumitomo Bank Limited (London) and KMMT Brey.

RMB is the lead arranger (jointly with Royal Bank of Canada DS in respect of the international debt finance) and joint underwriters with BoE Bank Limited and have structured its involvement in such a way as to ensure an appropriate division of responsibilities in respect of its different roles.

The N3 Toll Road Concession Contract has certain features which distinguish it from other road concessions and which impact on its funding requirements. These include:-

Firstly, N3TC is required to pay a lump sum amount of R1,38-billion to the NRA within fourteen days of the effective date for the right to toll the existing portions of the toll road.

Secondly, the project incorporates existing sections of toll road and toll revenue will be collected on three continuous sections of the highway from the effective date; thus, operating income is available to service loans raised to finance a portion of the capital expenditure during the first three years of the Concession. Tolling will commence on other sections on the completion of the specified works in the Initial construction period.

Thirdly, a major portion of new construction work, namely the De Beers Pass, only takes place when justified by the volume of traffic – currently predicted to commence in 2010. This means a large percentage of the required capital expenditure for this can be financed out of operating income.

The initial financing requirement is R362-million of equity in the form of shares and shareholder loans and R1,8-billion of debt which is in the form of fixed rate term debt and long term loans indexed to the CPI.

It is anticipated that some 40% of the equity in N3TC will be held by established contracting businesses, 40% by empowerment groups and the balance by various institutional investors.

A feature of the financing package is that certain lenders can provide lower cost finance but are unable to assume project risk. Other financiers have a comparative advantage in providing project risk credit enhancement. The combination of both approaches results in a lower overall cost of loan finance. Various guarantees against project risk have already been put in place.