East West Link bid a two-edged sword

The Australian: East West Link bid a two-edged sword. 10 September 2014, Sarah Danckert, Property Reporter Melbourne

Naming Lend Lease as preferred bidder for the first $8 billion stage of the controversial East West Link could be a blessing for the company, but the huge project carries risks, say ­analysts and fund managers.

The Victorian state government yesterday revealed that the Lend Lease-led consortium East West Connect had pushed ahead of rival consortium Inner Link Group, which included Korea’s Samsung C&T, Spain’s Cintra and Macquarie Capital.

Lend Lease will join forces with French construction group Bouygues and Spanish firm Acciona Infrastructure, with Lend Lease’s Capella Capital also ­on-board.

Leighton was in the race for the project, and debate continues on whether the company was simply not selected, as the government claims, or whether it pulled out because the project had “unacceptable risks”.

Lend Lease’s investors generally welcomed the announcement, though several raised concerns over the company taking on such a large project.

“I’ve heard there are some serious geotechnical risks associated with the tunnelling aspect of the project,” one investor who declined to be named said

The investor added that recent results from a state government drilling program showed that strong basalt had been found in the area. “There’s also risk around industrial relations on a project like this,” he said.

Phoenix Portfolios managing director Stuart Cartledge said it was positive to be named preferred bidder in a competitive environment. “It is quite a complicated project … Let’s just hope that they don’t cock it up.”

Commonwealth Bank analyst Ben Brownette said winning a high-profile PPP was a positive for Lend Lease, while acknowledging the accompanying risks.

“The risk profile of Lend Lease is changing as it takes on bigger jobs; however the experience of its team should alleviate risk” Mr Brownette said.

Lend Lease’s shares climbed 29c to close at $14.30.

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