Many of the major banks in Australia have established PPP teams and continue to develop their skill base despite the limited number of PPPs that have been established in this country (Euromoney Institutional Investor PLC, 2003b). ABN Amro, for example, has the biggest share in most of Australia's PPPs to date. There are several reasons for this. One is the bank's bond market experience and knowledge. Another is the apparent willingness of some banks to take 100 percent of the project equity (at least at the start) and to underwrite project bonds in their entirety, working in conjunction with private equity partners. Furthermore, governments are keen on the bank's willingness to act as a one stop shop-as financier, equity provider and debt arranger (Euromoney Institutional Investor PLC, 2003b; Jones, 2005).
The main focus for governments is finding the best financing model for PPPs. In recent years there has been a shift in the financing of PPPs through the re-emergence of the traditional funding model. Additionally other alternatives have been proposed in financing PPPs such as a debt capital markets alternative and bank debt package. In one of the fairly new projects-the Long Bay Forensic and Prison Hospitals (NSW) project-there was no bank debt in the transaction and the financing model consists of inflation linked and nominal bonds (Jones, 2005; NSW Health, 2006). Furthermore, a financial model is discussed by Keating (2004) promoting a hybrid PPP model and comprises a joint venture with contractors with equity underwritten 50-50. The major characteristic of this model is the equity ownership by both major parties so that they are each exposed for the long term. Even though a portion of the project may be sold, they still keep at least ten percent for the life of the project. Private equity has also featured in PPP financing and was promoted by ABN-Amro, although now much diminished.
The private equity funding model is variable as to the number of equity partners in the long-term plan. However, the financing model usually ensures that equity is provided by the members of a consortia and not just a single institution. Another difference, and just as important as the previous one, is that some of these sponsors intend to hold their stakes for the long term. Bankers argue that this characteristic makes the new financial options more competitive. On the other hand, ABN Amro usually sells its equity shortly after the financial close of the initial project. Nevertheless there is evidence that it is still gaining new projects. One of the successful PPPs has been the CBD Courts redevelopment project in Perth where ABN Amro was a partner in the winning consortium Western Liberty Group (Jones, 2005).
The shift to the new financing options means an increase in bank debt transactions. Bonds have been the cheaper solution in the PPP market to date. On the other hand bond issues in Australia are inflation linked and government has realised that it needs to take full account of the inflation risks that it is encountering. From recent examples it has been demonstrated that the government is willing to accept more interest rate risk in bank debt transactions than having costly hedges established (Jones, 2005). It appears that governments have a wider choice in funding PPPs and can make a decision depending on the specific requirements of the projects that are being undertaken. According to the literature review the two major players are bonds versus bank debt financing which are used according to the type of PPP and the goal that government wants to achieve. However, both types of financing raise questions about the regulation of aspects of PPP.