Corporate governance

The ASX Corporate Governance Council has published a set of ASX Corporate Governance principles and recommendations (the “Principles”) which encompass matters such as board composition, committees and compliance procedures.  The Principles are designed to maximise corporate performance and accountability in the interests of investors and the broader economy.

While the Principles are not prescriptive, listed entities are required to disclose in their annual reports the extent of their compliance with the Principles and to explain why they have not adopted a Principle, if they consider it inappropriate in their particular circumstances.  Set out below are details of MQA’s corporate governance regime and a corporate governance statement will be included in MQA’s first annual report.  Except as set out below, MQA intends to adopt policies and procedures in full compliance with the Principles.

Departure from the Principles

Independence criteria of directors

Independence of directors determined by objective criteria is acknowledged as being desirable to protect investor interests and optimise the financial performance of MQA and returns to MQA Securityholders.

In determining the status of a director, MQA applies the standards of independence required by the MQA independence criteria, which is similar to but not exactly the same as the Principles. The full details of MQA’s independence criteria are as follows:

An independent director is a director of the responsible entity and/or special purpose vehicle who is not a member of management (a non-executive director) and who (to the satisfaction of the relevant MQA board) meets the following criteria:

• Is not a substantial shareholder of MGL or MQA, or a company holding more than 5% of the voting securities of MGL or MQA.
• Is not an officer, or otherwise associated directly or indirectly with a shareholder holding more than 5% of the voting securities, of MGL or MQA.
• Has not, within the last three years, been:
  • Employed in an executive capacity by the responsible entity and/or special purpose vehicle, or by another Macquarie Group entity, or
  • A director of any such entity after ceasing to hold any such employment.
• Is not and has not within the last three years been a principal or employee of a professional adviser to MQA, Macquarie Group or other Macquarie Group managed vehicles whose billings to MQA, Macquarie Group or other Macquarie Group managed vehicles over the previous full year, in aggregate, exceed 5% of the adviser’s total revenues over that period. A director who is or within the last three years has been a principal or employee of a professional adviser will not participate in any consideration of the possible appointment of the professional adviser and will not participate in the provision of any service to MQA, Macquarie Group or another Macquarie Group managed vehicle.
• Is not a significant supplier or customer of MQA , Macquarie Group or other Macquarie Group managed vehicles, or an officer of or otherwise associated directly or indirectly with a significant supplier or customer. A significant supplier is defined as one whose revenues from MQA, Macquarie Group and other Macquarie Group managed vehicles exceed 5% of the supplier’s total revenue. A significant customer is one whose amounts payable to MQA, Macquarie Group and other Macquarie Group managed vehicles exceed 5% of the customer’s total operating costs.
• Has no material contractual relationship with Macquarie Group other than as a director of a responsible entity and/or special purpose vehicle.
• Is not a director of more than two Macquarie Group related responsible entities or special purpose vehicle boards.
• Has no other interest or relationship that could interfere with the director’s ability to act in the best interests of the Macquarie Group managed vehicle and independently of management of Macquarie Group.

However, where an individual may not meet one or more of the above criteria, the relevant MQA Board may make a specific determination that, in the particular overall circumstances of that individual, the fact that these criteria have not been met would not prevent the individual from exercising independent judgment on the relevant board(s).

The main areas of difference from the independence criteria set out in the Principles are:

• the MQA independence criteria are designed to ensure that directors are not only independent from MQA but that they are also independent from Macquarie Group and its other managed vehicles. Accordingly the independence criteria must be satisfied in respect of relationships with each of MQA, Macquarie Group and other Macquarie Group managed vehicles. By way of example a partner of a professional services firm who is a director on MQA would not be able to provide services to MQA or any Macquarie Group entities or managed vehicles and would not be able to vote on the appointment of his firm by MQA. Additionally the firm must not have earned more than 5% of its annual income from doing work for any of MQA, Macquarie Group or other Macquarie Group managed vehicles for 3 years prior to the appointment of the director and on an ongoing basis during the currency of the directorship;
• the MQA independence criteria do not specifically provide that independent directors must be free of any business relationship that could reasonably be perceived to materially interfere with their independence. However, the criteria are designed to ensure that this is in fact the case. Further, the MQA Boards can in appropriate circumstances determine that a director is not independent notwithstanding they continue in a formal sense to satisfy all of the independence criteria. This envisages that in some cases candidates will not be appointed or directorships will cease because of perception issues around independence; and
• the MQA independence criteria have a catch all provision, not included in the Principles, which gives the MQA boards discretion to determine that a director is independent even if they do not meet all the other MQA independence criteria.

The ability of independent directors to serve on up to two separate managed vehicle boards is considered appropriate because the time commitment and level of remuneration for these roles is not so significant as to compromise independence.

If any independent director serves on two managed vehicle boards or has been determined by the MQA boards as independent despite not satisfying all of the MQA independence criteria they will be noted as such in their description in any corporate governance disclosure. Reasons will be provided for any independence determination.

Each year independent directors are required to provide MQA with written confirmation of their independence status and they have each undertaken to inform MQA if they cease to satisfy the MQA independence criteria at any time. The MQA Australia company secretary also monitors compliance with the MQA independence criteria and seeks information from the independent directors in this regard if necessary and reports to the MQA Boards.

MQA considers that the independence of its directors, each of whom is a highly qualified and reputable business person and professional who satisfies the above criteria, does not depend on who appoints them but on their independence of mind, including an ability to constructively challenge and independently contribute to the MQA Boards.

Remuneration committee

The MQA Boards do not consider it necessary or appropriate to constitute a remuneration committee. Given the small size of the MQA Boards and that senior executive remuneration is not paid by MQA, the full board undertakes a process to review and benchmark director remuneration and considers that a remuneration committee is not justified.

Nomination committee

Neither of the MQA Boards has appointed a nomination committee given the small size of each board but an appropriate review of board candidates to ascertain that they meet director selection criteria will be undertaken by each of the relevant boards in full meeting before they are put forward for election.

Summary of key MQA policies

Related party transactions

The general rule is that all related party transactions involving members of the Macquarie Group must be on arm’s length terms unless approved by investors with Macquarie interests excluded from voting and in accordance with applicable regulatory requirements.  For the purposes of this policy, Macquarie Group includes:

• Entities directly or indirectly controlled by MGL, and each such entity, a Macquarie Group entity
• Special purpose vehicles or entities managed or advised by those entities (each, a “managed vehicle”) and their controlled entities.

Independence of directors

Please refer above for a summary of MQA’s independence criteria.

Borrowing and hedging

MQA’s borrowing and interest rate hedging policies will be consistent with MIG’s current practice. All term debt should be project level finance, secured over the assets of the project to which it relates, with no cross collateralisation between projects and with no recourse to MQA itself. Interest rate hedging should be in place to fix the cost of the majority of project level debt.

In relation to foreign exchange, MQA will not enter into ‘balance sheet hedging’ of the MQA Portfolio. Foreign currency cash receipts may be converted into Australian dollars or other currencies as required from time to time in order to carry out MQA’s strategy.

Valuations of assets

MQA will equity account for its non-controlled investments. As such valuations will not be reflected in MQA’s statutory financial report.

MQA intends to continue for the medium term to publish the directors’ valuation of the MQA Portfolio in a management information report, as a means of providing this additional information to investors The values of MQA’s road asset investments will be determined by the valuation framework adopted by the directors of MQA Australia and MQA Bermuda. Discounted cash flow (“DCF”) analysis will be applied as the primary valuation methodology, as it is the generally accepted methodology for valuing toll road assets and the basis upon which market participants have derived valuations for specific transactions.

Discounted cash flow is the process of estimating future cash flows that are expected to be generated by an asset and discounting these cash flows to their present value, by applying an appropriate discount rate.

The valuations will be internally produced by MQA. External or independent valuations will not be sought as a matter of course, however the valuations derived from the discounted cash flow analysis will be periodically benchmarked to other sources, such as recent market transactions.