Quito project also progressing well - 'effective date' expected within days --
Toronto, Ontario – January 18, 2006: Aecon Group Inc. (TSX: ARE) today announced that Derech Eretz Highways Ltd. (DEC), the company owning concession rights for the Cross Israel Highway, has signed an agreement with the state of Israel giving DEC the concession rights for a 17 km extension of the highway in northern Israel.
Under the agreement, which is structured as an addendum to the original concession contract signed in 1998, DEC is responsible for the financing, construction and operation of the extension. Aecon holds a 25% interest in DEC and in the construction joint venture that will construct the extension for DEC.
Construction, which is expected to cost approximately US$150 million, is slated to begin in mid-2006 and is scheduled to take about 30 months to complete. Total project cost, including development and financing costs, is expected to be approximately US$180 million.
Project lenders will provide approximately US$120 million in senior debt while the Israeli government will provide a US$10 million grant to the project as well as turning over to the concession some previously completed engineering and construction work. DEC will finance the balance of the project costs by issuing subordinated debt to third party financial investors.
Under the agreement, DEC will also be authorized to retire US$30 million of the subordinated debt that has been held by the DEC partners since financial close of the project in 1999. The retirement of this subordinated debt was subject to government and lender approval. Aecon would receive US$10 million of the expected debt retirement.
The agreement is subject to a number of conditions precedent including various state and lender approvals, archaeological considerations and tolling agreements, among others. As was the case in the original Cross Israel Highway concession contract, this agreement also requires various security and performance guarantees from the DEC partners.
The Cross Israel Highway, which has now been fully opened and tolled for two years, continues to meet the traffic projections set by the concessionaire. The Section 18 extension is expected to slightly increase Aecon's anticipated after tax internal rate of return (IRR) on the project, now expected to exceed 16%.
"This will be a good deal for Aecon on a number of levels. Not only will it be a large new construction job for us, but it will also enhance the value of our equity in the concession while allowing us to bring home a significant portion of our original investment," said John M. Beck, Chairman and CEO of Aecon Group Inc.
"I'm also pleased to report that we expect to reach the 'effective date' of the Quito Airport concession within the next few days - meaning that the concession will be in full effect," Mr. Beck said. "Taken together, these two developments are a strong signal that our infrastructure development investments continue their strong performance."
The effective date of the Quito Airport concession is reached when the City of Quito and the concessionaire, with approval of the project lenders, sign-off on the final contractual conditions precedent to the concession taking effect. The most important impact of achieving effective date is that the airport, which Aecon and its partners have been operating on behalf of the City for over three years, will then be operated to the financial benefit of the concessionaire.
Reaching effective date is an important step toward achieving financial close of the project, which will occur when all of the conditions to drawdown of the project loans have been met and the lenders have disbursed the first tranche of the senior loan funding for construction of the new airport. A formal request to begin the drawdown process is expected from the concessionaire next month, with financial close (i.e. receipt of the funds) expected later this quarter.
Aecon has a 45.5% economic interest in the airport concession through its stake in Corporaciσn Quiport S.A. (Quiport), which holds concession rights for the airport.
Aecon Group Inc. is Canada's largest publicly traded construction and infrastructure development company. Aecon and its subsidiaries provide services to private and public sector clients throughout Canada and internationally.