During 2008 the state consented to two requests for changes in control over the equity interest in the project. The requirement for state consent is set out in the project agreement.
In addition to being the project sponsor, BBIPL was the beneficial owner of the equity investment in the project via a number of interposed corporate entities and trusts created for the purposes of the project.
The project vehicle, CHP, is the trustee of a unit trust, CHP Unit Trust, of which the units were owned by Children's Health Partnership Holdings Pty Ltd (CHP Holdings) as trustee for the CHP Holdings Unit Trust. Ultimately, the units in the CHP Unit Trust and the CHP Holdings Unit Trust were owned by Pinnacle Infrastructure Pty Ltd as trustee of the Pinnacle Infrastructure Unit Trust. BBIPL is the ultimate holding company of Pinnacle Infrastructure.
As part of its tender submission, BBIPL proposed that it would transfer its equity interest in the project to its satellite investment fund, Babcock & Brown Public Partnerships Limited (BBPP). BBPP is listed on the London Stock Exchange and was established by BBIPL specifically for the purposes of investing in public infrastructure assets. It has equity in a number of Australian PPP projects including the Royal Melbourne Showgrounds redevelopment project. Around 92 per cent of shares in BBPP are owned by public investors with the remaining 8 per cent held by BBIPL.
In May 2008, BBIPL sought the state's approval to transfer ownership of the project by transferring the units in the CHP Holdings Unit Trust from the Pinnacle Infrastructure Unit Trust to BBPP (Aust) Limited, a subsidiary of BBPP. BBPP would thus become the beneficial owner of the equity in the RCH Project by virtue of its ownership of BBPP (Aust) Limited.
The Minister for Health approved the sale to BBPP in June 2008, based on advice from DHS. DHS did not obtain documented legal advice to support its advice to the Minister for Health on this matter.
Although the equity in the project (via the units in the CHP Unit Trust and CHP Holdings Unit Trust) was transferred to BBPP in mid 2008, there was no concurrent transfer of control/ownership of the respective trustees of the two unit trusts (CHP and CHP Holdings). These two companies are owned by Babcock & Brown Transactions Pty Ltd (BB Transactions), and through a range of intermediary organisations, are ultimately controlled by BBIPL.
DHS analysis indicates that the shares in the two trustee companies should have been transferred to BBPP at the same time as the sale of the units in the unit trusts. However, this did not occur.
In November 2008, CHP wrote to the state's project director requesting that the state consent to the transfer of BB Transactions' interest in both trustee companies to BBPP (Aust) Limited-a wholly owned subsidiary of BBPP.
DHS analysis indicated that the sale of the shares in CHP and CHP Holdings would effectively place both the unit trusts and their associated trustee companies in the control of BBPP. This would then complete the sale and allow the ownership structure of the RCH project to move from BBIPL, which would then retain a very small indirect interest via its minority shareholding in BBPP.
The Minister for Health consented to the transfer of the shares in Children's Health Partnership Pty Limited and Children's Health Partnership Holdings Pty Limited, to BBPP (Aust) RCH Limited in December 2008 based on advice from DHS. DHS did not obtain documented legal advice to support its advice to the Minister for Health on this matter.
The DHS advice to the Minister in December 2008, which recommended that he give this consent, indicated that BBPP was a solvent and reputable entity. DHS made reference to an external audit report dated 14 March 2008 and further advised that BBPP is listed on the London Stock Exchange with a market capitalisation in excess of £300 million.
The currency of the information put to the Minister could be queried due to the present global financial market uncertainty. More up to date information on the financial position and outlook for BBPP should also have been obtained. This is because under the project agreement the solvency and reputation of BBPP are relevant considerations for the Minister when assessing the request for consent to the transfer in ownership.