The State of Israel opted to develop and deliver the project through the formation of a PPP given the shortfall between available State funds and the urgent need for social capital infrastructure, including roads. Among the groups of firms that expressed interest in the project, four consortia of international and local firms were invited to bid for design-build-finance-operate and transfer (DBFO) project.
The winning syndicate for the concession contract was Derech Eretz, which comprised three major shareholders:
• Africa-Israel;
• Canadian Highways Infrastructure Corporation (CHIC); and
• Housing and Construction Limited.
90 percent of the project's value was financed with commercial debt. The New Israeli Shekel (NIS) syndicate provided debt financing. Deutschbank was part of the financing team that helped structure and arrange the debt financing for the project. The debt facility was syndicated with US$850 million arranged by Bank Hapoalim and US$250 million arranged by Tyco Group. Debt financing was structured such that margins would increase over the term of the facility to allow for low toll charges to be applied during the early stages of the concession.
The remaining 10 percent (US$120 million) was funded by a complex equity arrangement, which was phased to cover actual construction costs as they occurred. A 10-year block on dividends was also imposed to ensure that toll charges initially remained low.